Assessing the performance of water supply operations in Chinese water companies: A union dynamic multi-activity network data envelopment analysis

Abstract

Urban growth and the increasing urban water demand highlight the importance of performance analysis in the water supply industry. Both water supply companies (WSCs) and water supply and sewage companies (WSSCs) produce and deliver potable water for city dwellers. Water authorities use benchmarks to monitor the two types of companies' operations. The internal operation process and heterogeneities of observations were not considered for relative performance evaluation by conventional DEA models. To overcome these limitations, this study proposes a union dynamic multi-activity network data envelopment analysis (UDMANDEA) model to extend static network DEA to a more general case for dynamic efficiency assessment of the water supply operations of water companies. For the first time, the model allows for the decomposition of the water supply operation into water production (WP) and water consumption (WC) substages and performance comparisons for water companies by considering their heterogeneity simultaneously. Specifically, by using a non-radial directional distance function (DDF), the inefficiencies for substages and the entire system can be both assessed dynamically. This model is applied to a sample of 246 water companies in China in 2016–2018. The overall, period, and substages’ group efficiencies, meta efficiency, and technology gap ratio (TGR) for 179 WSCs and 67 WSSCs are all provided. The empirical results reveal that: (1) the average group efficiencies of WSCs and WSSCs are 0.4567 and 0.6611, respectively. The meta efficiencies of WSCs and WSSCs are 0.4523 and 0.4703, respectively. The TGR of WSCs (0.994) is greater than that of WSSCs (0.7067). (2) WSSCs perform better than WSCs do, which suggests that economies of scope do exist in WSSCs. However, WSCs possess the best technology for water supply operations because of their high TGR. (3) The average meta efficiency for all the observed water companies (0.4572) is not optimistic, which correlates more with inefficiency in the WP stage. The causes stem from the natural monopoly, lack of competition, and relatively lower water tariffs. The Chinese water supply industry requires diversification of ownership and operation modes, and gradual increases in water tariffs. (4) Water companies in the eastern region outperform those in other regions. Regional cooperation, such as technology sharing, the transfer of managerial experience, and information exchange, needs to be emphasized.