Changes to The Productivity of Water Companies: Comparison of Fully Private and Concessionary Water Companies

Abstract

The water industry encompasses a wide variety of water companies operating with different production technologies. This study evaluated and compared changes to the productivity of several fully private water companies (FPWCs) and concessionary water companies (CWCs). Specifically, the cost Malmquist productivity index was estimated by integrating inputs, outputs and environmental variables. A non-parametric approach was used by applying data envelopment analysis. This approach allowed us to quantify the parameters driving changes to productivity as cost efficiency change (technical and allocative efficiency), cost scale efficiency and cost technical change (technical change and input price effect). Through breaking down the cost Malmquist productivity index, relevant information for supporting decision making process by water companies is possible. To further evaluate the impact of water company heterogeneity on productivity change, the changes (convergence versus divergence) to productivity between group and meta-frontiers was estimated. The approach was applied empirically on a sample of 22 water companies in Chile during 2010–2017. The results showed that the productivity of both FPWCs and CWCs improved over time, with FPWCs performing better compared to CWCs. The main drivers of productivity growth for both types of water companies were scale efficiency, technical efficiency and input price effect. Thus, water companies in Chile could improve productivity by moving to a cost-efficient allocation of their resources. The rate of productivity convergence was higher for CWCs compared to FPWCs. The approaches developed in this study provide information that could be used by water managers to better understand what drives productivity and, thus, delineate strategies to improve performance over time.