A metastochastic frontier analysis for technical efficiency comparison of water companies in England and Wales

Abstract

Evaluating the performance of water companies is of great importance for both water utilities and water regulators. This paper explores comparative levels of technical efficiencies and technology gap ratios with the metafrontier concept by estimating an input distance function using stochastic frontier techniques. The metafrontier framework is employed in the water services of water and sewerage companies (WaSCs) and water-only companies (WoCs) in England and Wales. The results show that the English and Welsh water industry is an efficient industry, with WaSCs more efficient than WoCs. On average, a water company can increase its technical efficiency by operating in more densely populated areas and by investing in technology to reduce bursts in water mains. We also link the efficiency results with the regulatory cycle to assess the impact of regulation on the efficiency levels of water companies.