Development and application of the Hicks-Moorsteen productivity index for the total factor productivity assessment of wastewater treatment plants

Abstract

The assessment of the productivity change in wastewater treatment plants is essential to improve performance and reduce operational costs. Several indices are available to compute unit productivity, however some assessments are more reliable than others. In the absence of price data, the Malmquist productivity index is the most commonly applied; but it does not maintain total factor productivity properties under variable returns to scale technology. Hence, Malmquist productivity index is not a suitable index to compute total factor productivity change in wastewater treatment plants. The present study served to overcome such limitations by calculating, for the first time, total factor productivity changes in a sample of 204 Spanish wastewater treatment plants using the Hicks-Moorsteen productivity index. It is a multiplicatively-complete index, which can be decomposed as several sub-indices representing technical and efficiency changes. Therefore, this study also investigated the drivers of total factor productivity change in wastewater treatment plants. Results showed a 5.4% total factor productivity decline per year from 2003 to 2008 in the plants analysed. The primary driver in the reduction was efficiency change. Alternatively, technical change improved during the five years of study. The results of this study provide support for policymakers and managers in decision-making processes and contribute to the improvement of technical and economic wastewater treatment plants performance. In addition, it is evidenced that wastewater treatment plants current dependence on external energy sources should be reduced to improve productivity and reduce costs to citizens who pay for wastewater treatment services.