Benchmarking the performance of water companies for regulatory purposes to improve its sustainability

Abstract

The regulation of water companies (WCs) is essential to protect the interests of citizens, as companies are natural monopolies. Consequently, several methodological approaches are applied by water regulators to benchmark the performance of WCs, with data envelopment analysis (DEA) being one of the most widely applied. However, traditional DEA models allocate different weights to variables considered in efficiency assessments of each WC. By contrast, this study proposes and applies a common set weights (CSW) DEA model to a sample of Chilean WCs. The results showed that the DEA-CSW approach had greater discriminatory capacity compared to traditional DEA techniques. Moreover, weights allocated to input and output variables involved in efficiency assessment diverged among WCs when the traditional DEA model was employed. By contrast, the DEA-CSW approach generated reliable ranking of WCs based on their efficiency scores, thus facilitating the regulatory decision-making process.