Impact of environmental variables on the efficiency of water companies in England and Wales: a double-bootstrap approach

Abstract

An important aspect of the regulatory process is the performance comparison of regulated firms. This exists in regulated industries where tariffs are determined through a benchmarking process such as the English and Welsh water industry. A double-bootstrap data envelopment analysis (DEA) approach was applied to overcome the uncertainty in efficiency scores and to reveal the influence of environmental variables on 18 water companies in England and Wales during the 2001–2016 period. The results showed that bias and bias-corrected efficiency scores lead to changes in the water companies’ rankings. This reveals the importance of using reliable methodologies to support the decision-making process. Higher levels of average pumping head, leakage, and abstraction of water from reservoirs lead to lower efficiency. In contrast, increased population density leads to larger efficiency. We also link the results from the efficiency of water companies with the regulatory cycle. Our findings can be useful to policy makers for them to better understand water utilities’ performance and to aid them in reshaping their current policies and practices to improve efficiency and provide better service to customers.