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Output Quality and Sources of Profit Change in the English and Welsh Water and Sewerage Companies

Author

Listed:
  • Alexandros Maziotis

    (Fondazione Eni Enrico Mattei (FEEM) and Euro-Mediterranean Centre on Climate)

  • David S. Saal

    (Aston University)

  • Emmanuel Thanassoulis

    (Aston University)

Abstract

This paper investigates the determinants of profit change over the period 1991-2008 for the Water and Sewerage Companies (WaSCs) in the English and Welsh water and sewerage industry. We firstly apply an input oriented profit decomposition approach following the approach of De Witte & Saal (2010). Then, we make allowances for differences in the quality of output, by decomposing the output effect into high quality and low quality output effect. We decompose profit changes into various factors such as quantity and price effect, technical change, efficiency change, resource mix, product mix and scale effect, without and after controlling for quality. In both cases, the positive impact on profit changes came from substantial improvements in technical change, the cost efficient allocation of resources by substituting labour with capital and small improvements in efficiency gains. The input price and scale effect had a significant negative impact on profit changes. This technique is of great interest for regulators to evaluate the effectiveness of regulation and companies to identify the determinants of profit change and improve future performance, even if sample sizes are limited.

Suggested Citation

  • Alexandros Maziotis & David S. Saal & Emmanuel Thanassoulis, 2012. "Output Quality and Sources of Profit Change in the English and Welsh Water and Sewerage Companies," Working Papers 2012.85, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2012.85
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    Cited by:

    1. Molinos-Senante, María & Maziotis, Alexandros & Sala-Garrido, Ramón, 2014. "The Luenberger productivity indicator in the water industry: An empirical analysis for England and Wales," Utilities Policy, Elsevier, vol. 30(C), pages 18-28.

    More about this item

    Keywords

    Profit Decomposition; Productivity; Index Numbers; DEA; Regulation; Water and Sewerage Industry;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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