Nonparametric Benchmarking of Japanese Water Utilities: Institutional and Environmental Factors Affecting Efficiency

Abstract

Although the Japanese water sector is economically and socially important, few empirical studies are available to help analysts and policy-makers understand the performance patterns in the industry. This study applies data envelopment analysis to 5,538 observations of 1,144 utilities that supplied drinking water between 2004 and 2007. With a comprehensive census of utilities, the present study controls for many factors affecting efficiency: region, prefecture, ownership/governance, water source, vertical integration (purchased or produced alone), water or integrated system, production, treatment, transport and distribution of water), peak factor, per capita consumption, customer density, water losses, monthly water charge, outsourcing, subsidies, gross prefecture product, and time. Thus, this study derives comprehensive conclusions regarding efficiency patterns in Japan. The analysis finds that the average level of inefficiency (weighted by volume) is 57% in the constant return to scale model, but only 24% for the (more flexible) variable return to scale model. Improving sector efficiency and transferring funds to more innovative sectors rather than using scarce funds to subsidize water distribution would benefit citizens. Thus, the application of advanced quantitative techniques to Japanese water utilities improves the understanding of efficiency patterns and underscores the importance of in-depth studies of the individual factors examined in this study.

The role of environmental variables on the efficiency of water and sewerage companies: a case study of Chile

“…More recently, Carvalho and Marques (2011) evidenced that for Portuguese water companies ,there is a positive influence when factor peak approaches 1.4. A similar result was found by Marques et al (2014) for Japanese water utilities. They considered that in touristic areas, water utilities have high per capita income, which means that the higher cash flows may enable the utility to invest more into assets and technology and, thus, become more productive.…”

“…Because there is no formal theory as to what the determinants of the performance of WaSCs should be, the set of variables were drawn from the literature on water utilities. Carvalho and Marques (2011) and Marques et al (2014) conducted an extensive literature review on the influence of the operational environment on water utilities' efficiency. Moreover, the explanatory variables considered in our study are also conditioned by the availability of statistical information.…”

“…Wilson (2000, 2008) incorporated statistical properties into DEA analysis by introducing statistical inference into these analyses. A similar approach developed by Daraio and Simar (2007) was applied by Marques et al (2014) to explore whether Japanese water utilities operate under CRS or VRS.…”

The Effects of Operational and Environmental Variables on Efficiency of Danish Water and Wastewater Utilities

“…Furthermore, a two-stage approach, such as the one used here, yields consistent estimators of the impact produced by environmental and operational variables on efficiency. Moreover, as highlighted by Marques, Berg and Shinji [66] when using DEA, then adjusting for environmental variables is complex because of the imposition of separability conditions and depends on the correlation between the inputs and outputs and the exogenous features of the external environment. So, the Authors investigated the influence of exogenous variables (institutional and operational environment) by using a recently developed, robust technique [66].…”

Efficiency, Conflicting Goals and Trade-Offs: A Nonparametric Analysis of the Water and Wastewater Service Industry in Italy

“…The output of the regression analysis suggests that the extent rate of sewerage systems, the volunteer participation rate and the education level influence management performance. Marques et al [24] conduct an extensive benchmarking study of the drinking water industry in Japan applying data envelopment analysis to measure efficiency of 1144 utilities considering 5538 observations relative to the period 2004-2007. Scholars adopt both constant and variable returns to scale assumptions.…”