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Inefficiencies in Public Environmental Services

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  • Roelof de Jong
  • Andries Nentjes
  • Doede Wiersma

Abstract

The paper discusses efficiency issues in the public provision of environmental services, in particular waste water treatment. It is shown that in the face of increasing, respectively decreasing returns to scale the zero profit constraint of a cost minimizing public firm induces underinvestment, respectively overinvestment in public capacity compared with efficient allocation between public purification and effluent control by private polluters. X-inefficiency of the public firm counter-acts the inefficiency in allocation arising from overinvestment, and it reinforces the inefficiency in allocation in case of underinvestment in public purification capacity. As subsidy can bring down the user's charge imposed on sources, but it will also increase X-inefficiency. The subsidy counteracts underinvestment but reinforces overinvestment in public capacity. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Roelof de Jong & Andries Nentjes & Doede Wiersma, 2000. "Inefficiencies in Public Environmental Services," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(1), pages 69-79, May.
    • Handle: RePEc:kap:enreec:v:16:y:2000:i:1:p:69-79
    DOI: 10.1023/A:1008370023661
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    References listed on IDEAS

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    1. Kolm, Serge-Christophe, 1975. "Rendement qualitatif et financement optimal des politiques d'environnement. (With English summary.)," Econometrica, Econometric Society, vol. 43(1), pages 93-113, January.
    2. Duizendstraal, Anton & Nentjes, Andries, 1994. "Organizational Slack in Subsidized Nonprofit Institutions," Public Choice, Springer, vol. 81(3-4), pages 297-321, December.
    3. Andries Nentjes & Wolfgang Schopp, 2000. "Discretionary Profit in Subsidised Housing Markets," Urban Studies, Urban Studies Journal Limited, vol. 37(1), pages 181-194, January.
    4. Pethig, Rudiger, 1989. "Efficiency versus self-financing in water quality management," Journal of Public Economics, Elsevier, vol. 38(1), pages 75-93, February.
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    Cited by:

    1. Fuentes, R. & Torregrosa-Martí, T. & Hernández-Sancho, F., 2017. "Productivity of wastewater treatment plants in the Valencia Region of Spain," Utilities Policy, Elsevier, vol. 46(C), pages 58-70.

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