Regression versus data envelopment analysis for efficiency measurement: an application to the England and Wales regulated water industry (original) (raw)
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Interdisciplinary Description of Complex Systems 22(4), 497-509, 2024
This article aims to demonstrate that the Data Envelopment Analysis method can be employed to evaluate the operational efficiency of public utility enterprises under state ownership or local government jurisdiction, such as cities and municipalities. These enterprises are tasked with delivering high-quality public services to citizens at affordable prices. Achieving this goal necessitates efficient management and judicious use of public resources. The research evaluated the efficiency of public water utility enterprises in the Federation of Bosnia and Herzegovina using the Data Envelopment Analysis method. Three indicators were used as inputs in the model: asset value, number of employees, and total expenses. The output indicator was total revenue, which reflects the number of users under relatively uniform service tariffs. The findings reveal that 92.31% of these public utilities exhibit technical efficiency levels above 90%. Additionally, 53.85% demonstrate 100% technical efficiency in input utilisation. The results highlight enterprises that inefficiently use assets incur above-average costs or employ more workers than necessary. The study concludes that the Data Envelopment Analysis model effectively identifies state-owned public utility enterprises that consume above-average resources to deliver the same scope and quality of services.
Efficiency in the water industry
Utilities Policy, 2005
This paper considers the use of efficiency measurement in the regulation of the water industry in England, Wales, and Scotland. Ofwat employs econometric models; some examples of these are provided together with an explanation of the way Ofwat applies them to the financial model for each company. Finally we consider the question of the accuracy of these models and conclude that, while the models probably do contain information about companies' scope for cost reductions, Ofwat probably overestimates the quality of its models. Specifically Ofwat's estimate that 90% of the water model residuals and 80% of the sewerages models can be attributed to efficiency has not been given an explicit justification and probably overstates the case.
Water
The objective of this paper is to estimate the operational efficiency of Mexican water utilities and identify the context variables that impact their efficiency. In particular, a bootstrap data envelopment analysis (DEA) and a bootstrap truncated regression analysis are combined in a two-stage research method. In the first stage, an input-oriented DEA model is used to determine bootstrap efficiency scores. Then, the corrected distribution function of the efficiency scores is used to estimate a truncated regression which is aimed to identify the significant influential context variables. Three categorical and two continuous context variables are considered in the analysis. Results show that only one context variable has a significant impact on the water utilities efficiency scores. Managerial recommendations are drawn from the analysis. It is suggested that water utilities continue or implement wastewater treatment, persist in decreasing and controlling leakage across the distributio...
Measuring Efficiency of Water and Wastewater Company: A Dea Approach
The aim of this study is to measuring the efficiency of Water and Wastewater Company (WWC). Data Envelopment Analysis (DEA) is a body of research methodologies to evaluate overall efficiencies and identify the sources and estimate the amounts of inefficiencies in inputs and outputs. In DEA, the best performers are called DEA efficient and the efficiency score of a DEA efficient unit is denoted by a unity. It is possible to prevent wasting resources and unreasonable increase of costs by measuring efficiency of various sections of the economy, especially servicing and nonprofit units. This research attempts to measure and compare technical efficiency value of 17 municipalities of Markazi province (Iran) in urban Water and Wastewater Company (WWC) by using DEA. Data for 2006 were used to estimate efficiency scores. The results indicated less than 30% of municipalities were fully technically efficient that could be referred as inefficient units. Capital input and water losses were the major source of the inefficiency. Thus, the policy makers should focus on rebuilding the infrastructure of the water networks, beginning with the most DEA inefficient municipalities in order to minimize water losses and maximize efficiency of capital input.
Benchmarking the efficiency of the Chilean water and sewerage companies: a double-bootstrap approach
Environmental science and pollution research international, 2018
Benchmarking the efficiency of water companies is essential to set water tariffs and to promote their sustainability. In doing so, most of the previous studies have applied conventional data envelopment analysis (DEA) models. However, it is a deterministic method that does not allow to identify environmental factors influencing efficiency scores. To overcome this limitation, this paper evaluates the efficiency of a sample of Chilean water and sewerage companies applying a double-bootstrap DEA model. Results evidenced that the ranking of water and sewerage companies changes notably whether efficiency scores are computed applying conventional or double-bootstrap DEA models. Moreover, it was found that the percentage of non-revenue water and customer density are factors influencing the efficiency of Chilean water and sewerage companies. This paper illustrates the importance of using a robust and reliable method to increase the relevance of benchmarking tools.
Efficiency in South African water utilities : a comparison of estimates from DEA , SFA and StoNED
2019
For efficiency analysis to be useful to policymakers, the various approaches used should produce estimates that are consistent in identifying the best and worst firms, as well as overall rankings of firms in terms of their efficiency levels. This paper investigates the consistency of efficiency scores obtained from the data envelopment analysis (DEA), stochastic frontier analysis (SFA), and stochastic non-parametric envelopment of data (StoNED) methods. We estimate cost efficiency based on cross-sectional data from 102 South African water utilities in the period 2013/14. The results suggest that the StoNED method (based on the methods of moments estimator) outperforms SFA and DEA. However, based on the pseudo-likelihood estimator, SFA outperformed StoNED. Overall, the results suggest moderate consistency across the three methods. Based on the findings, we conclude that our results are robust. Classification-JEL: D24, H41, P28, Q25
Measuring the efficiency of wastewater services through Data Envelopment Analysis
Water Science and Technology, 2015
Efficient water management is a priority in the European Union, since the operational efficiency of many water utilities is very low compared to best practice. Several countries are restructuring the water industry to save costs. Larger-scale operations and vertical integration are promoted to achieve scale and scope economies; however, the literature is not unanimous that such economies exist. There is also little evidence of the effect of customer density on costs. This article offers some insights into this matter, analysing the Danish water industry by a two-stage Data Envelopment Analysis approach to investigate the effects of size, scope and density in the wastewater industry. The results show that the Danish wastewater industry is positively affected by vertical integration and higher population density: firms that serve more than 100 person per km of sewer and combine water and wastewater services achieve better efficiency. Size does not have any significant influence on glo...
2016
Efficiency improvement is one of three patterns a public utility should follow in order to get funds for investments realization. The other two are recourse to bank loans or to private equity and tariff increase. Efficiency can be improved, for example, by growth and vertical integration and may be conditioned by environmental variables, such as customer and output density. Prior studies into the effects of these variables on the efficiency of water utilities do not agree on certain points (e.g., scale and economies of scope) and rarely consider others (e.g., density economies). This article aims to contribute to the literature by analysing the efficiency of water utilities in Denmark, observing the effects of operational and environmental variables. The method is based on two-stage Data Envelopment Analysis (DEA) applied to 101 water utilities. We found that the efficiency of the water sector was not affected by the observed variables, whereas that of wastewater was improved by smaller firm size, vertical integration strategy, and higher population density.
2020
Various government-owned businesses provide water supply services to Australian residents. With the advent of recent competition and regulatory reforms in infrastructure industries in Australia, more and more of these businesses are now facing new types of incentive-based regulatory regimes. This has led to a desire for more information on the performance of these businesses, both relative to each other and over time. In this study we use panel data on the 18 largest Australian water services businesses, observed over an eight-year period from 1995/6 to 2002/3, to measure the relative efficiency and productivity growth of these businesses. Data envelopment analysis (DEA) methods are used to obtain estimates of the multi-input, multi-output production technology. The potential use of these performance measures in price-cap regulation is discussed, where the effects of variable selection and data quality upon empirical results is emphasised.
For efficiency analysis to be useful to policymakers, the various approaches used should produce estimates that are consistent in identifying the best and worst firms, as well as overall rankings of firms in terms of their efficiency levels. This paper investigates the consistency of efficiency scores obtained from the data envelopment analysis (DEA), stochastic frontier analysis (SFA), and stochastic non-parametric envelopment of data (StoNED) methods. We estimate cost efficiency based on cross-sectional data from 102 South African water utilities in the period 2013/14. The results suggest that the StoNED method (based on the methods of moments estimator) outperforms SFA and DEA. However, based on the pseudo-likelihood estimator, SFA outperformed StoNED. Overall, the results suggest moderate consistency across the three methods. Based on the findings, we conclude that our results are robust.