Examining the economies of scale of water and sewage utilities in the urban sector: the case of Israel

Abstract

This study applies econometric tools to examine the economies of scale of the water and sewage utilities corporation (utilities) in the urban sector in Israel, and to find whether reducing the number of utilities will maximize efficiency in the urban water sector. Using an econometric analysis of an elasticity Translog cost function, which allows the estimation of returns to scale, the authors examined the optimal size for water and sewage utilities in Israel, based on panel data of 51 utilities. According to the study's results, there is a distinct advantage of economies of scale in Israel's water utilities, and the current distribution of the urban water sector in Israel is characterized by inefficiency and high cost. The results indicate that reducing the number of utilities will achieve an increase in water quantities by utility, and the costs of water production will decline due to economies of scale.