Service quality, scale economies and ownership: an econometric analysis of water supply costs
2014
Garcia, Serge | Destandau, François
Issues related to service quality are crucial forwater utility management andregulation. Omitting these aspects, especially when they are treated as exogenous, canlead to large biases in estimating cost functions as well as to misleading informationconcerning technology. In this article, we integrate the output multi-dimension inthe cost function, considering delivered water volume and service quality as beingendogenous. Network-related scale measures and private versus public ownership areinvestigated with the objective of evaluating how endogenous quality may affect theirimpact on costs.Atranslog costmodel is estimated from a dataset of USwater utilities.It is shown that including the quality level of the delivered services has a significantimpact on scale economies and ownership effects. Significant economies of scopeconfirm the existence of trade-offs between water production and service quality.
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