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Water Resources Management

Erschienen in:

02.06.2016

Efficiency in the Consolidation of the Italian Water Sector

verfasst von: Graziano Abrate, Clementina Bruno, Fabrizio Erbetta, Giovanni Fraquelli, Anna Giolitti

Erschienen in: Water Resources Management | Ausgabe 8/2017

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Abstract

Despite since the mid-90s the regulation has encouraged horizontal and vertical bundling, the Italian water and sewerage industry is still largely fragmented. This work investigates the potential benefits of the process of consolidation, relying on realistic ex-ante merger hypotheses. A parametric methodology is used to implement the Bogetoft and Wang 2005’s decomposition of potential gains from mergers (J Prod Anal 23:145–171). When looking at strictly technological aspects, results do not provide univocal evidence in favor or against merger strategies, recommending a case-by-case approach in evaluating real merger projects. Moreover, the largest potential gains are due to managerial rather than technological inefficiency, thus their effective ex-post attainment ultimately depend on the ability to tackle the change and on political will.

Vorheriger Artikel Pushing the Governance Boundaries: Making Transparent the Role of Water Utilities in Managing Urban Waterways

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For generic inputs x and outputs y, the production possibility set can be defined as: $ T=\left\{\left(x,y\right)|x\; can\; produce\;y\right\} $

For a deeper and more generalized discussion, as well as for further detail, see Bogetoft and Wang (2005) and Bogetoft and Otto (2011), chapter 9.

This is possible since the cost frontier is defined only by means of the starting (real) units. The simulated mergers (with aggregated variables) do not contribute to the construction of the frontier, so they do not necessarily lie in the production possibility set.

Since the bias in DEA operates restricting the production possibility set, the merger gains, and the size effect especially, would have been underestimated

Bogetoft and Otto (2011), where all these points are highlighted, reports also some applied examples relying on different frontier models. Also Bruno (2012) provides, for the same reasons, a comparison of DEA and SFA estimates.

It is evident that this is a purely deterministic model, since any deviation from the frontier is considered as inefficiency, and random noise is not accounted for. In principle, more sophisticated models based on stochastic frontier analysis (SFA) could be employed, but we discarded this opportunity since, as highlighted in Bogetoft and Otto (2011), due to methodological complications, the best procedure to evaluate merger gains in a SFA framework is not perfectly defined.

In Antonioli and Filippini (2001) the length of network is used as a characteristics of the output along with the number of customers.

Since the logarithmic specification does not allow to treat variables including zeros, we have substituted the null values with an arbitrary small number, fixed at 1/1000 of the geometric mean of the variable

For each output, the cost elasticity can be computed as

$$ {\varepsilon}_{Yi}=\frac{\partial lnC}{\partial lnYi} $$

and the formula for economies of scale is

$$ ES = \frac{1}{{\displaystyle {\sum}_{i=1}^n}{\varepsilon}_{Yi}} $$

Economies of scale are present if ES > 1. Otherwise we have diseconomies.

We thank an anonymous referee for having raised this issue.

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Titel: Efficiency in the Consolidation of the Italian Water Sector
verfasst von: Graziano Abrate
Clementina Bruno
Fabrizio Erbetta
Giovanni Fraquelli
Anna Giolitti
Publikationsdatum: 02.06.2016
Verlag: Springer Netherlands
Erschienen in: Water Resources Management / Ausgabe 8/2017
Print ISSN: 0920-4741
Elektronische ISSN: 1573-1650
DOI: https://doi.org/10.1007/s11269-016-1376-9

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