Decomposition of Productivity Growth of Water and Sewerage Companies: An Empirical Approach for Chile

Abstract

Evaluating the productivity growth of water and sewerage companies (WaSCs) is useful to ensure their long-term sustainability and to protect the interests of customers. Previous studies that assessed the WaSCs’s productivity provided an aggregate productivity index without accounting for the specific contribution of the variables involved in the analysis. To overcome this limitation, and as a pioneering approach, this study provides a comprehensive analysis of the effects that inputs and outputs have on WaSCs´ overall productivity change. In doing so, a methodological approach based on the weighted directional distance model was applied. An empirical application was carried out for the Chilean water industry from 2005 to 2014. Results evidenced that inputs, desirable outputs and undesirable outputs contributed negatively to productivity regression. The negative change of the efficiency change was caused mainly by the regression of the non-revenue water. From a policy and managerial perspective, this study reveals the importance of quantifying the contribution of inputs and outputs in productivity growth in order to support decision-making.