A stochastic meta-frontier approach for analyzing productivity in the English and Welsh water and sewerage companies

Abstract

Within the water industry, some water companies provide both water and sanitation services whereas other just water services. Assuming a common technology of different types of water companies may lead to biased estimates of performance. To deal with the problem of incomparability of heterogeneous water companies, the metafrontier approach was employed. A stochastic metafrontier approach was employed to estimate and compare the productivity change of the English and Welsh Water and Sewerage companies (WaSCs) and Water only companies (WoCs) during the years 1991–2016. To identify the drivers of productivity growth, the metafrontier Malmquist productivity was decomposed into four components namely: Group-frontier efficiency change, group-frontier technological change, efficiency catch-up and technological catch-up. The results indicate that over the entire period industry productivity slightly increased by 1.5% per year on average with WoCs performing slightly better than WaSCs. Group-frontier efficiency change, group-frontier technological change and technological catch-up contributed positively to metafrontier productivity growth, whereas the temporal changes of efficiency catch-up have been the source of deterioration.