Financial winners and losers since the privatization of the English and Welsh water and sewerage industry: a profit decomposition approach

Abstract

Evaluating changes in profit, price and productivity over time can be of great importance for regulated water industries. We investigate the drivers of profit, price (capital, labour and other inputs) and productivity change (cost efficiency change, technical change and scale effect) and the recipients of productivity change (consumers, the business itself, employees and other resource suppliers) of the English and Welsh water and sewerage companies over the period of 1995–2016. The results indicate that the profit decreased over time due to the negative quantity effect, which offset the positive price effect. A further decomposition of the quantity effect illustrates the negative impact of the cost efficiency change and scale effect on profits. Moreover, the financial winners since the water companies’ privatization have been the employees and the suppliers of other inputs, whereas the customers of the water and sewerage services and the business itself have not benefited as much.