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Water Resources Management
Published in: Water Resources Management 1/2017

08-12-2016

The Influence of the Regulatory Environment on Chinese Urban Water Utilities

Authors: Fan Li, Michelle Andrea Phillips

Published in: Water Resources Management | Issue 1/2017

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Abstract

China is currently facing water scarcity issues, which can partially be relieved with improvements in efficiency in its urban water supply sector. Using a manually collected utility-level dataset for 2009–13, we examine the performance of Chinese urban water utilities, taking into account their regulatory environment. Our main findings are that: (1) an increase in the number of non-technical staff does not increase output levels, while an increase in the number of technical staff, length of pipe or electricity usage can increase output; (2) customer density and non-household user rates are associated with lower levels of inefficiency (or higher levels of measured efficiency), while outsourcing staff rate, non-revenue water rate, and average piped water pressure do not significantly affect efficiency. These results suggest that Chinese urban water utilities can be improved through performance-based regulation and incentives that take into account environmental factors of utilities.
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Footnotes
1
Nevertheless, there have been examples of water prices being raised in urban areas such as Beijing (Lee 2006).
 
2
Mugisha (2007) provides examples of how incentives have been applied to water utilities in Uganda.
 
3
The main advantage of SFA compared to DEA is that it accounts for statistical noise and allows for statistical inference. The main advantage of DEA compared to SFA is that it does not require the imposition of a functional form and can incorporate multiple outputs relatively easily (Coelli et al. 2005).
 
4
Most of these results are not statistically significant at conventional levels.
 
5
Electricity is an input for pumping and distributing water. We lack data on chemicals for water treatment and distance from water source.
 
6
Rural migration to urban areas is, of course, accompanied by consequences in several other areas, such as air quality, overall level of industrialization, etc.
 
7
Antoniolli and Filippini (2001) use a cost function while Picazo-Tadeo et al. (2009) use a production function to study density.
 
8
This variable influences costs rather than efficiency. Even though these are not the same concept, this variable has been included both in this study and in other production function studies in the literature because excluding it is expected to result in a biased analysis since it is an influential environmental variable. Ignoring this variable is expected to result in unfair comparisons of efficiency where firms with higher proportions of residential customers would receive lower efficiency scores (Carvalho and Marques 2011).
 
9
Note that leakage per kilometer can still be high, so further research in this area is needed to see whether performance improvements can be achieved by repairing or replacing pipes.
 
10
Without the water pressure variation data, this paper cannot provide direct evidence of how the variation affects efficiency. This is an area for future research.
 
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Metadata
Title
The Influence of the Regulatory Environment on Chinese Urban Water Utilities
Authors
Fan Li
Michelle Andrea Phillips
Publication date
08-12-2016
Publisher
Springer Netherlands
Published in
Water Resources Management / Issue 1/2017
Print ISSN: 0920-4741
Electronic ISSN: 1573-1650
DOI
https://doi.org/10.1007/s11269-016-1519-z

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