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Incorporating water purification in efficiency evaluation: Evidence from Japanese water utilities

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  • Theara Horn

    (Graduate School of Economics, Osaka University)

Abstract

Water production and service quality have been used as dimensions of efficiency evaluation in previous studies of water utilities f performance. This study attempts to show that the inclusion of water purification efforts should be another crucial dimension in the efficiency measurement. We use a stochastic cost frontier to estimate the technical efficiency of 392 Japanese water utilities in 2005. The results show that a water purification effort may increase cost, and that its inclusion in efficiency evaluation leads to some specific changes in efficiency score and the ranking of water utilities. Furthermore, this incorporation enables the impact of different qualities of source water on efficiency to be controlled. The result suggests that in order to encourage water purification efforts, it is crucial to incorporate purification in benchmarking.

Suggested Citation

  • Theara Horn, 2009. "Incorporating water purification in efficiency evaluation: Evidence from Japanese water utilities," Discussion Papers in Economics and Business 09-40, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0940
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    References listed on IDEAS

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    1. Kim Woodbury & Brian Dollery, 2004. "Efficiency Measurement in Australian Local Government: The Case of New South Wales Municipal Water Services," Review of Policy Research, Policy Studies Organization, vol. 21(5), pages 615-636, September.
    2. Saal, David S & Parker, David, 2001. "Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales," Journal of Regulatory Economics, Springer, vol. 20(1), pages 61-90, July.
    3. Sappington, David E.M. & DEC, 1994. "Principles of regulatory policy design," Policy Research Working Paper Series 1239, The World Bank.
    4. Fumitoshi Mizutani & Takuya Urakami, 2001. "articles: Identifying network density and scale economies for Japanese water supply organizations," Papers in Regional Science, Springer;Regional Science Association International, vol. 80(2), pages 211-230.
    5. David Saal & David Parker & Tom Weyman-Jones, 2007. "Determining the contribution of technical change, efficiency change and scale change to productivity growth in the privatized English and Welsh water and sewerage industry: 1985–2000," Journal of Productivity Analysis, Springer, vol. 28(1), pages 127-139, October.
    6. Lin, Chen, 2005. "Service quality and prospects for benchmarking: Evidence from the Peru water sector," Utilities Policy, Elsevier, vol. 13(3), pages 230-239, September.
    7. David S Saal & David Parker, 2000. "The impact of privatization and regulation on the water and sewerage industry in England and Wales: a translog cost function model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(6), pages 253-268.
    8. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, October.
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    Cited by:

    1. James I. Price & Steven Renzetti & Diane Dupont & Wiktor Adamowicz & Monica B. Emelko, 2017. "Production Costs, Inefficiency, and Source Water Quality: A Stochastic Cost Frontier Analysis of Canadian Water Utilities," Land Economics, University of Wisconsin Press, vol. 93(1), pages 1-11.
    2. Price, James I. & Heberling, Matthew T., 2018. "The Effects of Source Water Quality on Drinking Water Treatment Costs: A Review and Synthesis of Empirical Literature," Ecological Economics, Elsevier, vol. 151(C), pages 195-209.
    3. Alexandr Akimov & Paul Simshauser, 2018. "Performance measurement in Australian water utilities: Current state and future directions," Discussion Papers in Finance finance:201802, Griffith University, Department of Accounting, Finance and Economics.

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    More about this item

    Keywords

    Water utilities; Water purification; Stochastic Cost Frontier;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H49 - Public Economics - - Publicly Provided Goods - - - Other
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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