Public utility planning and cost efficiency in a decentralized regulation context: The case of the Italian integrated water service

Graziano Abrate, Fabrizio Erbetta, Giovanni Fraquelli

Research output: Contribution to journalArticlepeer-review

Abstract

The reformed Italian water and sewerage industry has several distinctive features. It is based on a decentralized structure where local authorities are entitled to define detailed long-term budget plans that claim to provide efficiency incentives to operating suppliers. Unlike previous studies, this paper analyzes the cost efficiency embedded in these budget plans to evaluate the actual capability of local regulators to adequately orientate firm performance. Several panel data cost frontier models were estimated that incorporate diverse specifications for inefficiency and unobserved heterogeneity terms. The results indicate that the decentralized planning mechanism applied in Italian water and sewerage industry regulation failed in fulfilling the declared goal and further highlights that the time-invariant terms are the prevailing source of cost differences, which may conceal a structural component attributable to persistent inefficiency.

Original languageEnglish
Pages (from-to)227-242
Number of pages16
JournalJournal of Productivity Analysis
Volume35
Issue number3
DOIs
Publication statusPublished - Jun 2011

Keywords

  • Cost inefficiency
  • Heterogeneity
  • Stochastic cost frontier
  • Water industry

Fingerprint

Dive into the research topics of 'Public utility planning and cost efficiency in a decentralized regulation context: The case of the Italian integrated water service'. Together they form a unique fingerprint.

Cite this