Economie di scala e di densità nel settore idrico: ulteriore evidenza empirica per l'Inghilterra

Abstract

In this paper we estimate a cost function for the English water only sector in order to improve the knowledge of the technological structure of the industry. The analysis of the existence and extent of cost economies might provide useful insights for the regulator and policymakers in terms of industry design and economic regulation. In order to expand previous results in Bottasso and Conti (2008), we estimate a cost function which includes, together with water delivered and connected properties, the service area size. This specification allows us to consider different measures of cost economies, namely economies of output and customer density and scale economies. Economies of output density provide useful information on the impact on costs deriving from higher demand generated from the existing customer base; economies of customer density are the relevant measure to consider when output grows because of demand arising from new customers; finally economies of scale shed light on possible gains deriving from mergers between nearby utilities. In particular, we verify whether previous results are confirmed when estimating a total cost function, given that estimates from a variable cost function might suffer from possible multicollinearity problems.Our main results show that economies of output density exist and tend to decrease with firm size, while economies of customer density are positive but slightly increasing with the scale of the utilities. This latter result implies that population growth should not lead to increases in the average production costs. Moreover, estimates suggest the existence of moderate economies of scale which do not seem to vary with size. This finding implies that utilities at the median of the sample (i.e. companies with a production of about 270 ML/d, about half a million customers and with a service area of about 2000 squared Km) might be enjoying modest cost savings from prudent aggregations. Furthermore, the Morishima elasticities of substitution suggest a relatively limited degree of substitutability between inputs.