Giovanni Fraquelli

Scope and Scale Economies in Multi-Utilities: Evidence from Gas, Water and Electricity Combinations

Within the recent debate on liberalization of local public services, the paper investigates the cost properties of a sample of Italian public utilities providing in combination gas, water and electricity. The estimates from a Composite Cost Function econometric model (Pulley and Braunstein, 1992) are compared with the ones coming from other traditional functional forms such as the Standard Translog, the Generalized Translog, and the Separable Quadratic. The results highlight the presence of global scope and scale economies only for multi-utilities with output levels lower than the ones characterizing the ‘median’ firm. This indicates that relatively small specialized firms would benefit from cost reductions by evolving into multi-utilities providing similar network services such as gas, water and electricity. However, for larger-scale utilities the hypothesis of null cost advantages is not rejected. Thus, it is possible that the recent diversification waves of leading companies are explained by factors other than cost synergies, so that the welfare gains that can be reasonably expected from such examples of horizontal integration, if any, are likely to be very low.

The Costs of Disposal and Recycling: An Application to Italian Municipal Solid Waste Services

Abrate G., Erbetta F., Fraquelli G. and Vannoni D. The costs of disposal and recycling: an application to Italian municipal solid waste services, Regional Studies. The paper investigates the costs of waste disposal and recycling services by using a well-behaved Composite cost function model. The estimates on a unique sample of more than 500 Italian municipalities highlight that the refuse collection technology exhibits constant returns to scale as well as scope economies between disposal and recycling. As far as the size of the municipality increases, scope economies rise up to 20%, but they are accompanied by overall diseconomies of scale. The findings suggest that, on the one hand, joint management of disposal and recycling should be encouraged and, on the other hand, that strategies aimed at increasing the share of waste sent for recycling would not imply a considerable increase in total costs.

Produttività e redditività nella distribuzione locale di gas naturale in Italia: proprietà, diversificazione e scala operativa

The paper focuses on the analysis of the productivity and profitability of the natural gas distribution in Italy between 1994 and 1999. The period covers the years preceding the liberalisation act. The dynamic of efficiency and the characteristics of cost are analysed in a general framework and then associated to various organisational arrangements involving the type of ownership, the degree of diversification and the size. The main results outline a marked profitability but a low growth in the total factor productivity. The reason is to be searched in the price regulation system. More in detail, the public firms and the specialised ones show greater performances than their counterparts. Quite ambiguous influence is exerted by size variable.

Efficiency in the Consolidation of the Italian Water Sector

Despite since the mid-90s the regulation has encouraged horizontal and vertical bundling, the Italian water and sewerage industry is still largely fragmented. This work investigates the potential benefits of the process of consolidation, relying on realistic ex-ante merger hypotheses. A parametric methodology is used to implement the Bogetoft and Wang 2005’s decomposition of potential gains from mergers (J Prod Anal 23:145–171). When looking at strictly technological aspects, results do not provide univocal evidence in favor or against merger strategies, recommending a case-by-case approach in evaluating real merger projects. Moreover, the largest potential gains are due to managerial rather than technological inefficiency, thus their effective ex-post attainment ultimately depend on the ability to tackle the change and on political will.

The determinants of board compensation in SOEs: an application to Italian local public utilities

This article investigates the determinants of board compensation for a sample of Italian state owned enterprises (SOEs). To that purpose, we use newly collected panel data of 106 local public utilities observed from 1994 through 2004, which includes detailed information on the boards of directors. During this period, the deregulation process inspired institutional interventions that forced utilities, traditionally owned by local municipalities, to change their juridical form and ownership structure, thereby facilitating the entrance of private investors. The corporate governance literature shows that such changes may exacerbate the agency conflicts between shareholders, top executives and the board. However, board compensation could reduce the agency costs by aligning the incentives of managers with the interests of shareholders. This article addresses this issue by investigating the impact that board composition, firm characteristics and performance have on board compensation. We find that the average board pay is positively related to firm dimension and negatively related to board size. The public or private nature of the major shareholder does not influence board compensation but the juridical form does. Finally, while the proportion of politically connected directors is found to negatively influence the level of per capita compensation, the impact of firm performance is uncertain.

Size and Density Economies in Refuse Collection

The focus of the paper is to analyze the costs of solid waste collection by applying a well-behaved multiproduct cost function model to a sample of more than 500 Italian municipalities. Beyond shedding light on the presence and on the extent of size (or scale) economies, our aim is to investigate in depth the issue of economies of density, which is still an underexplored topic in the literature. Our cost function specification, by being able to estimate several measures of density economies (such as output density economies, vertical density economies and horizontal density economies), allows to capture the impact of different urbanization models on the costs of refuse collection and disposal. The results of the estimates highlight the presence of output density economies as well as horizontal density economies. Conversely, there is significant and robust evidence of the existence of vertical density diseconomies, which suggests that congestion problems in densely populated councils are severely affecting garbage collection costs. Finally, there is evidence of diseconomies of size, which suggests that aggregating the refusal collection operations of several municipalities would not bring savings in the average costs.

The economic sustainability of renewable energies

The transition toward a significant penetration of renewable sources in electricity generation, although desirable under an environmental viewpoint, is likely to be very costly due to the scarce adaptability to Renewable Energy (RE) sources characterized by relevant intermittency. In fact, generation from RE sources implies a change in the scheduling of the rest of generating facilities, which may affect operational costs of the power systems due to a more frequent cycling of thermal plants, i.e. a change in operating modes that occur in response to varying dispatching requirements. In this paper we investigate the effect on cost efficiency of energy operators as a consequence of the penetration of REs at the Country level using a two-step model based on Data Envelopment Analysis. The findings highlight a negative and significant impact of the index of penetration of REs on cost efficiency of firms involved in the production of programmable sources.

Hedonic Hotel Pricing and Quality Signals: Which are the Market Value Drivers in a Transition Phase?

The study aims to uncover the relationships between price setting and reputation building processes through an application of hedonic price function. In coherence with a sustainable approach, the model proposed also includes variables related to land use policies and tourism development strategies. A simultaneous equations model is adopted where both price and quality signals are endogenously determined. This innovative method is appropriate in an emerging urban destination, characterized by an enhancement of the existing hotel industry. The findings reveal that, in accordance with a customer based perspective, a high star category and place uniqueness help explain consumers’ willingness to pay. A premium price is recognized for quality signals directed at balancing intangible aspects related to service provision with hoteliers’ environmental concerns. The results have important marketing implications for the competitiveness of the hospitality industry.

Managerial Efficiency and Firm Size: An Assessment of the Strategic Potential of Italian Manufacturing Industries

The main aim of the study is to examine the relationship between firm size and efficiency in Italian manufacturing industries. Although the literature has sometimes underlined the intrinsic weakness of an excessive fragmentation in industry organization, some authors have recently emphasized the role of medium-sized firms, as potentially benefitting from a mix of «structure» and «flexibility». Using Data Envelopment Analysis (DEA) on a sample of medium and large firms, the study disentangles technical efficiency into managerial and scale components. The results show a higher performance of small-medium class, associated with a more rational use of labour factor and a discipline effect of short-run debt.

Strategie multi-prodotto nei servizi di pubblica utilità: effetti della diversificazione e della densità dell'utenza

In the paper we study the cost structure of a sample of Italian utility providing in combination gas, water and electricity. The estimates from a Composite cost function model (Pulley e Braunstein, 1992) highlight that costs are lower when multi-utility operate in high-density areas and when they are diversified also in other services (heating, sewerage, waste water treatment). However, global scope and scale economies are present only for multi-utility operating at low levels of user density (usually small-sized firms in rural areas), whereas they are absent for firms facing a high user density (usually larger-scale companies in urban areas). The fact that utility in the latter group do not benefit from cost synergies across services suggests that their diversification might be due to managerial and/or market power motivations.