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Private or Public Enterprises? Cost Inefficiency Limits - An Application to Water Supply Companies in Brazil

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Listed:
  • Osvaldo Candido
  • Wilfredo L. Maldonado
  • Cintia L. M. Araujo

Abstract

In this paper we analyze the cost inefficiency limits of firms operated by the government. First, we prove, through a simple theoretical model, the existence of a limit of the cost inefficiency that a public firm may have. Such limit depends on the market demand and cost structure. Above that limit, transferring the firm's operations to a private initiative is better. Second, using data from the Sanitation Information System of Brazil, we propose an empirical procedure based on the Laffont and Tirole (1986) model of firms’ regulation to measure the cost inefficiency of public water providers in Brazil.

Suggested Citation

  • Osvaldo Candido & Wilfredo L. Maldonado & Cintia L. M. Araujo, 2021. "Private or Public Enterprises? Cost Inefficiency Limits - An Application to Water Supply Companies in Brazil," Working Papers, Department of Economics 2021_09, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2021wpecon09
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    References listed on IDEAS

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    More about this item

    Keywords

    Cost inefficiency; privatization; inefficiency estimation;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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