Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach

Abstract

Public utilities could improve their efficiency by pursuing specific strategies, such as growth, diversification of investments, or serving mainly high densely areas. For example, in the water sector, economies of scope and scale both appear possible, but extant literature does not offer clear or consensual findings. To address this lack of clarity, this article investigates the potential for efficiency improvement in the diverse Italian water sector, which comprises utilities of various sizes, operating in areas with various population densities and organized as mono- or multi-utilities. Technical and financial data from 64 different utilities were collected and then analyzed with a two-stage data envelopment analysis approach to reveal the impacts of different operational and exogenous variables on efficiency, including firm size, the degree of investment diversification, and customer density. The results obtained confirm the existence of all three types of economies (scale, scope and density), albeit with different impacts for each DEA score.