Drivers of profitability and productivity growth in the English and Welsh water industry since privatization

Abstract

In this article we investigate the relationship between productivity and profitability, and their drivers: changes in outputs, output and input prices, technical change, technical efficiency change, and scale and mark-up effects. We apply profit decomposition to the water and sewerage companies in England and Wales in 1991–2016. We find that over this period their profit and productivity increased by 4% and 2.5% per year, respectively. Technical change, scale and mark-up effects, and output and input prices contributed positively to profit growth, while the impact of technical efficiency change, although positive, was small.