Performance of Portuguese water utilities: how do ownership, size, diversification and vertical integration relate to efficiency?

Abstract

This research applies the stochastic frontier analysis benchmarking method to measure the performance of the water sector in Portugal. It estimates a multiproduct translog cost function in order to study the efficiency of the water and sewerage services, using an unbalanced panel comprising 68 Portuguese water utilities for the biennium 2004–2005. The sample is formed by concessionaire companies, municipal companies and semi-autonomous utilities which represent approximately 61% of the Portuguese population, around 6.4 million inhabitants. The water utilities studied have a satisfactory level of efficiency (89% on average). The study points to the assumption that private utilities are, on average, more efficient than public utilities and that there are benefits if the companies specialize in providing a single activity. It also leads to the conclusion that there are increasing economies of scale and decreasing economies of scope associated with the Portuguese water sector.