Efficiency Assessment of Water and Sewerage Companies: a Disaggregated Approach Accounting for Service Quality

Abstract

This paper evaluates the efficiency of water and sewerage companies (WaSCs) by applying the weighted Russell directional distance model. This is a non-radial data envelopment analysis (DEA) model that allowed us to obtain an individual efficiency score for each input and output considered in the assessment. This study provides a pioneering approach to evaluating the efficiency of WaSCs, since previous studies on this topic were based on radial DEA models that only provide a global efficiency score. Moreover, three variables representing the lack of service quality were introduced into the model as undesirable outputs. An empirical application was carried out for the 25 largest Chilean WaSCs for 2013. The results illustrated that around one-third of the WaSCs in Chile are totally efficient. The inefficiency scores for each variable evidenced that one of the main challenges of the water industry in Chile is to reduce the percentage of unbilled water and that this issue is especially marked for medium WaSCs. As part of the second-stage analysis, some differences in performance between private and concessionary WaSCs were found, although the results were inconclusive. Several policy implications to help water companies’ managers and water regulators make informed decisions were drawn from our empirical analysis.