Productivity growth, economies of scale and scope in the water and sewerage industry: the Chilean case

Abstract

Evaluating the performance and analyzing the cost drivers of water utilities is of great interest for water regulators and water sector managers. This study uses a quadratic cost function to investigate the existence of economies of scale and scope in the Chilean water and sewerage industry over the period 2010–2017. We also estimate and decompose productivity growth into technical change and scale efficiency change. Technical change is further broken into pure, non-neutral and scale-augmenting technical change. The results indicate that cost savings can be achieved by increases in the scale of production and the separation of water and sewerage services. Productivity progressed favorably throughout the whole period at an annual rate of 8.4%, which was attributed to the scale effect, the adoption of new technologies and a good allocation of resources. Some policy implications are finally discussed based on our findings.