The cost efficiency of water utilities: when does public ownership matter?

ABSTRACT

This study explores the impact of different ownership types on the efficiency of water utilities. Theories and evidence have shown a puzzling relationship between ownership and performance. Moreover, relatively recent contributions (Andrews et al. 2011) have argued that this relationship can be further convoluted by the effect of organisational and environmental variables. The current study aims to contribute to this literature by providing some empirical evidence for Italy, by proposing a methodology that combines non-parametric efficiency estimation and cluster analysis. Our main findings indicate that privately owned utilities indirectly controlled by a public organisation reach the highest level of efficiency but, when size and geographical location enter the analysis, ownership has a stronger significant effect on efficiency, and mixed utilities gain higher cost efficiency. Therefore, we may conclude that administrative reforms about privatisation and the institutional setting should consider a set of variables that characterise each individual organisation.

KEYWORDS:

• Efficiency
• geographical location
• ownership
• size
• water utilities

Acknowledgements

All authors wish to thank Diego Prior and Germà Bel for helpful and constructive discussion. We are also grateful for the comments by participants at the Regional Studies Association Early Career Conference 2013 (Manchester, UK), XXI Encuentro de Economía Pública 2014 (Girona, Spain) and the 37th European Accounting Association Annual Congress 2014 (Tallinn, Estonia) and, especially, those of two anonymous referees which contributed to the overall improvement of the article. Emili Tortosa-Ausina acknowledges the financial support of Ministerio de Economía y Competitividad [ECO2014-55221-P], Universitat Jaume I [P1.1B2014-17] and Generalitat Valenciana [ACOMP/AQ9 2014/283 and PROMETEOII/2014/046].

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. As indicated by Coelli et al. (2005), the input-oriented efficiency addresses the question: ‘By how much can input quantities be proportionally reduced without changing the output quantities produced?’ (137). This approach seems particularly suitable for the context of the water industry, where utilities are more able to control their inputs rather than their outputs – such as water delivery and population served (Abbott and Cohen 2009; Coelli and Walding 2006; Romano and Guerrini 2011).

2. In 2015, Federutilities was merged in Utilitalia.

Additional information

Funding

Emili Tortosa-Ausina acknowledges the financial support of Ministerio de Economía y Competitividad [ECO2014-55221-P], Universitat Jaume I [P1.1B2014-17] and Generalitat Valenciana [ACOMP/2014/283 and PROMETEOII/2014/046].

Notes on contributors

Silvia Pazzi

Silvia Pazzi is Lecturer in Accounting and Finance at the University of Leicester in the United Kingdom. Her main fields of research are public sector accounting, financial statement analysis and efficiency analysis. Recently she has published in Meditari Accountancy Research and in International Journal of Social Ecology and Sustainable Development.

Emili Tortosa-Ausina

Emili Tortosa-Ausina is Professor of Applied Economics at the University Jaume I (Spain). His main fields of research are efficiency and productivity analysis, banking and finance, and regional and urban economics. He has published several books and articles in specialised journals, including European Economic Review, Economic Geography, Environment and Planning A, Journal of Banking and Finance, World Development, Omega, etc.

Meryem Duygun

Meryem Duygun holds the Aviva Chair in Risk and Insurance at the Nottingham University Business School in the United Kingdom. Meryem is the President of IFABS-International Finance and Banking Society. Her main research fields are banking, finance, risk and applied economics. She has published two books and several articles in major journals, including JBF, JFS, JEBO, EJOR, Omega, JPA, etc.

Simona Zambelli

Simona Zambelli is Associate Professor at Bologna University. Her research filed includes venture capital, private equity, corporate governance, and financial regulation. She published several books and articles in specialized journals: Journal of Banking and Finance, European Financial Management, and International Journal of Management Reviews. She worked as post-doctoral researcher at Harvard University and as Visiting Professor at RPI and York University.