Rangesan Narayanan

Specification and estimation of the effect of ownership on the economic efficiency of the water utilities

Abstract A stochastic frontier cost function is used to specify the cost of inefficiency of publicly and privately owned urban water utilities in terms of their different ownership structures and firm-specific characteristics. A translog cost function is used to approximate the production technology. Both mean and variance of inefficiency are specified in the model as functions of firm-specific factors. Estimation is done in two steps, which does not require a set of stringent distributional assumptions as needed for the estimation of a standard frontier model. Results show that when the operation is small, privately owned water utilities are comparatively more efficient. Public water utilities are comparatively more efficient when the scale of operation is large. A generalized likelihood ratio test of the null hypothesis that the inefficiency effects are not firm-specific is rejected in favor of a firm-specific specification.

Cost analysis of water utilities: A goodness-of-fit approach

The behavior of privately owned and publicly owned water utilities is examined by calculating the percentage difference between the observed cost and the optimum cost consistent with the Weak Axiom of Cost Minimization for each individual water utility. It allows for a comprehensive analysis of nearly optimizing behavior of economic units as opposed to the conventional analysis of exact optimizing behavior. The empirical results provide evidence that private water utilities are more efficient than public water utilities.

Optimal extraction of petroleum resources: An empirical approach

Abstract Petroleum reservoir behavior at different levels of reservoir pressure is estimated with the actual well data and reservoir characteristics. Using the pressure at the bottom of producing wells as control variables, the time paths of profit maximizing joint production of oil and natural gas under various tax policies are obtained using a dynamic optimization approach. The results emerge from numerical solution of the maximization of estimated future expected revenues net of variable costs in the presence of taxation. Higher discount rate shifts the production forward in time and prolongs the production plan. The analysis of the state, corporate income taxes and depletion allowance reveals the changes in the revenues to the firm, the state and the federal governments.

Energy development and Navajo coal leasing programs A dynamic optimization approach

Abstract This paper employs a dynamic optimization model to evaluate the shadow prices of Navajo coal and estimates the optimal rate of extraction of coal over time using conventional welfare economics criterion. The results indicate that the actual royalty payment received by the tribe on the basis of the present long-term lease contracts is usually less than the amount estimated in the optimizing model. In view of the tribes recently recognized legal right to tax, a corrective tax scheme is suggested.

Evaluation of municipal water supply operating rules using stochastic dominance

A procedure for evaluating and selecting among alternative rules for operating a municipal water supply system is outlined in this study. It is assumed that monthly water demands and supplies are random. The total cost, however, is affected by both current month and future water allocation decisions with respect to the operation of facilities. A perfect foresight model using mixed integer programming is developed and applied to 36 years of historical demand and supply data. Using the solutions to this model, several simple operating rules are derived. These rules are applied to the historical data to simulate system operation, and cumulative distribution of net revenue for each rule is derived. Based on first- and second-degree stochastic dominance criteria, the performance of alternative rules are evaluated. The procedure is also repeated with a set of generated data sequences to check the consistency of the solutions. Average reductions of up to 11% in annual net revenues from those of a perfect foresight model are observed, for various operating rules. Using stochastically dominant rules, annual revenues can be increased by 5% on the average from a commonly used rule based on unit cost.

A note on the inefficiency cost of non-optimal input mix

Abstract The purpose of this note is to show results of allocative inefficiency costs associated with a Cobb-Douglas technology. Under a two-input-single-output Cobb-Douglas production function, the cost implication of non-optimal input use is evaluated for a wide range of input distortions. Upper bound for inefficiency costs are also established without requiring knowledge of the parameters of the production function.

Agricultural Productive and Consumptive Use Components of Rural Land Values in Texas: Comment

Previous studies have found that the market price of rural land generally exceeds the capitalized value of its returns from agricultural production (Castle and Hoch). In a recent article, Pope attempts to explain this disparity through an analysis of land values across school districts in rural Texas. Pope concludes that consumptive demand for land accounts for over 75% of the difference between agricultural land market prices and capitalized rental value in agricultural production. However, deficiencies in Popes conceptualization of the problem and his empirical model raise doubts about the large importance of consumptive value. Pope identifies only two primary components to the value of surface rights to rural land: agricultural productive (including future productivity growth) and consumptive components. Hence, what is not agricultural productive value is, by this definition, consumption value. This conceptual framework is too simple and misleading. For example, demand for land resulting from expected future growth in nonagricultural uses (an expectation component) is not addressed in Popes study. This may have been an important contributor to land values in Texas during the period of this analysis because of the large influx of population from the Midwest and the intense energy exploration and production activities. This expectation component, however, is empirically captured by Pope in variables representing consumptive value in model 2 (since model 1 did not have much explanatory power). Ignoring the role of expectations in land value determination, Pope interprets the proportion of land value that may have been attributable to expectations as arising from consumptive demand. Even without an expectations component, Pope has failed to properly estimate the consumptive value of rural land parcel price. Land is a heterogenous resource with many attributes. These attributes can be broken down into three general categories: soil or bare land, natural site characteristics (trees, streams, lakes, ponds, wild animals, mountain views, and geographic hazards such as hurricanes, floods, earthquakes), and availability of other nonland services (roads, power, water, sewer, etc.). Popes analysis of parcel price includes soil or bare land, one site characteristic (number of white-tailed deer harvested) and one nonland service measure (access to metropolitan areas). The sum of the marginal valuations of these attributes is treated by Pope as contributing to consumptive value. There are two problems in his approach. First, the attributes that Pope used in the regression (number of deer harvested and access to metropolitan areas) contribute to productive as well as consumptive values. Second, marginal prices derived from the simple hedonic function, estimated by Pope, do not measure the willingness to pay for additional units of attributes except under restrictive and unlikely assumptions such as incomes and socioeconomic characteristics of all buyers and sellers are the same (Rosen, Follain and Jimenez). There are, however, other methods suggested and used in the literature to determine the marginal values of various attributes and their interrelationships (Rosen, Quigley, Diamond). Pardew, Shane, and Yanagida is an example of a study applying Rosens hedonic framework to determine marginal values of parcel size, presence of trees, distance to mountain, presence of sewer lines, etc. Conceptually, Pope has estimated a simple hedonic equation (excluding on-site structures) for rural real property. Viewed as a hedonic price equation for rural property, the estimated model has measurement problems. The dependent variable, average market value per acre of rural land (AMV), is based on samples of actual sales data or appraisals of agricultural parcels that vary widely in access to nonland services (State Property Tax Board 1985). Annual net returns per acre from agriculture (ANR) are calculated on the basis of owner-operator budgets or typical lease agreements for a given Texas area (State Property Tax Board 1982). For this study, individual sales data are more appropriate because sales price, calculated net returns, and parcel characteristics have a one-to-one correspondence with one another. For the data set selected, the average ANR calculated for a county may represent a much different average farm than is represented by averRangesan Narayanan and Ronald L. Shane are associate professors in the Department of Agricultural Economics at the University of Nevada. Detailed review comments by an anonymous referee were extremely helpful. The authors are also grateful to Mike Houston for sharing his knowledge of Texas land characteristics and market conditions.