Benchmarking the economic and environmental performance of water utilities: a comparison of frontier techniques

Abstract

PurposeThe purpose of this paper is to estimate and compare the efficiency of several water utilities using three frontier techniques. Moreover, this study estimates the impact of several qualities of service variables on water utilities’ performance.Design/methodology/approachThe paper utilizes three frontier techniques such as data envelopment analysis (DEA), stochastic frontier analysis (SFA) and stochastic non-parametric envelopment of data (StoNED) to estimate efficiency scores.FindingsEfficiency scores for each methodological approach were different being on average, 0.745, 0.857 and 0.933 for SFA, DEA and StoNED methods, respectively. Moreover, it was evidenced that water leakage had a statistically significant impact on water utilities’ costs.Research limitations/implicationsThe choice of an adequate and robust method for benchmarking the efficiency of water utilities is very relevant for water regulators because it affects decision making process such as water tariffs and design incentives to improve the performance and quality of service of water utilities.Originality/valueThis paper evaluates and compares the performance of a sample of water utilities using three different frontier methods. It has been revealed that the choice of the efficiency assessment method matters. Unlike SFA and DEA, a lower variability was shown in the efficiency scores obtained from the StoNED method.