Production functions for water delivery systems: Analysis and estimation using dual cost function and implicit price specifications

Abstract

Both policy and technical analysis of water delivery systems have been based on cost functions that are inconsistent with or are incomplete representations of the neoclassical production functions of economics. We present a full-featured production function model of water delivery which can be estimated from a multiproduct, dual cost function. The model features implicit prices for own-water inputs and is implemented as a jointly estimated system of input share equations and a translog cost function. Likelihood ratio tests are performed showing that a minimally constrained, full-featured production function is a necessary specification of the water delivery operations in our sample. This, plus the model's highly efficient and economically correct parameter estimates, confirms the usefulness of a production function approach to modeling the economic activities of water delivery systems.

The role of environmental factors in water utilities’ technical efficiency. Empirical evidence from Spanish companies

“…A number of papers have already introduced this variable to test for its impact on the efficiency of water companies. Although most of them have focused on cost efficiency, their results seem to confirm the existence of economies of density, i.e., the higher the density of population the greater the level of efficiency (Mann and Mikesell, 1976, Teeples and Glyer, 1987, Fabbri and Fraquelli 2000, Antonioli and Filippini, 2001and Estache and Rossi, 2002. Inconclusive evidence is also found by García and Thomas (2001), while Tupper and Resende (2004) find empirical evidence supporting the existence of density economies in the provision of the service of water delivery, but not in the service of sewage collection.…”

Driving forces for consolidation or fragmentation of the US water utility industry: A cost function approach with endogenous output

“…2 Garcia and Thomas use the number of communities served, Mizutani and Urakami the length of pipelines, and Kim and Clark the length of transmission lines to represent the spatial dimension. 3 Exogenous output cost function models for water utility industry have been estimated by, for example, Andwandter and Ozuma [1], Estache and Rossi [9], Mizutan and Urakami [19], Fabbri and Fraquelli [10], Saal and Parker [26], Renzetti [24], Bhattacharyya et al [3], Lynk [17], Hayes [13], Teeples and Glyer [28], Kim [14], and Feigenbaum and Teeples [11]. An exception is Garcia and Thomas.…”

The potential of water markets to allocate water between industry, agriculture, and public water utilities as an adaptation mechanism to climate change

“…Table 2 shows the total calculated expenditure on water abstraction, treatment, and discharge of water users in the manufacturing sectors in the Netherlands as well as the total output of each sector. For the value of the water composite in the public water services sector (not shown in Table 2 ), we relied on Teeples and Glyer ( 1987 ) who estimated a constant cost share of raw water of 18 %.…”