Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes?

Estruch-Juan, Elvira; Cabrera, Enrique; Molinos-Senante, María; Maziotis, Alexandros

doi:10.3390/w12041046

Open AccessArticle

Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes?

by

Elvira Estruch-Juan

^1,*

,

Enrique Cabrera, Jr.

¹,

María Molinos-Senante

² and

Alexandros Maziotis

³

¹

ITA, Universitat Politècnica de València, 46020 València, Spain

²

Centro de Desarrollo Urbano Sustentable, Santiago 15110020, Chile

³

Foundazione Eni Enrico Mattei, 30135 Venice, Italy

^*

Author to whom correspondence should be addressed.

Water 2020, 12(4), 1046; https://doi.org/10.3390/w12041046

Submission received: 5 January 2020 / Revised: 1 April 2020 / Accepted: 2 April 2020 / Published: 7 April 2020

(This article belongs to the Special Issue Management of Urban Water Services)

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Abstract

Frontier efficiency methods have been recurrently used in the water sector to assess the performance of water utilities. These methods are also used for yardstick regulation, with greater efficiency being sought by creating competition between the utilities, which can have an impact on decision-making processes, such as tariff setting. This study analyzes the adequacy and limitations of these methods for regulatory purposes, particularly how they deal with data uncertainty and their capacity to manage large number of variables. In order to achieve this, two representative methods—a nonparametric technique (data envelopment analysis) and an econometric one (stochastic frontier analysis)—are applied to an audited sample of 194 water utilities. Results will show that the results from the methods may not be considered conclusive in the water sector and their application should be carried out with considerable reservations.

Keywords: regulation of water services; frontier efficiency methods; performance assessment; data envelopment analysis; stochastic frontier analysis; efficiency of water services; yardstick regulation

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MDPI and ACS Style

Estruch-Juan, E.; Cabrera, E., Jr.; Molinos-Senante, M.; Maziotis, A. Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes? Water 2020, 12, 1046. https://doi.org/10.3390/w12041046

AMA Style

Estruch-Juan E, Cabrera E Jr., Molinos-Senante M, Maziotis A. Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes? Water. 2020; 12(4):1046. https://doi.org/10.3390/w12041046

Chicago/Turabian Style

Estruch-Juan, Elvira, Enrique Cabrera, Jr., María Molinos-Senante, and Alexandros Maziotis. 2020. "Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes?" Water 12, no. 4: 1046. https://doi.org/10.3390/w12041046

APA Style

Estruch-Juan, E., Cabrera, E., Jr., Molinos-Senante, M., & Maziotis, A. (2020). Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes? Water, 12(4), 1046. https://doi.org/10.3390/w12041046

Note that from the first issue of 2016, this journal uses article numbers instead of page numbers. See further details here.

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Are Frontier Efficiency Methods Adequate to Compare the Efficiency of Water Utilities for Regulatory Purposes?

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