Comparing the performance of public and private water companies in the Asia and Pacific region : what a stochastic costs frontier shows

Estache and Rossi estimate a stochastic costs frontier for a sample of Asian and Pacific water companies, comparing the performance of public and privatized companies based on detailed firm-specific information published by the Asian Development Bank in 1997. They find private operators of water companies to be more efficient than public operators. Costs in concessioned companies tend to be significantly lower than those in public companies. The authors show that rankings based on standard indicators are not always very consistent. This paper contributes to that growing literature. The rest of the paper is organized as follows. Section 2 presents the theoretical structure of the cost model estimated. Section 3 provides an overview of earlier studies of the water sector. Section 4 presents the estimates of costs frontiers obtained for a large sample of Asian and Pacific Region water companies, distinguishing between public and private operators. Section 5 compares the performance ranking from efficiency frontier measures to those obtained from productivity indicators. Section 6 concludes.