The impact of regulation on the Brazilian water and sewerage companies’ efficiency

Abstract

Access to sanitation services in Brazil is still deficient, despite the abundant financial resources allocated to it in the last two decades and the objective of the regulatory framework of 2007 of providing universal access and efficient sanitation systems. This article analyzes the impact of the regulatory environment on the water and sewerage companies' levels of efficiency. First, these efficiencies were computed within a dynamic network data envelopment analysis for a sample of 156 Brazilian water and sewerage companies, from 2006 to 2015, considering investments in water, investments in sewage, and operations divisions separately. In the second stage, this research related water and sewerage companies' efficiencies to innovative measures of the regulatory environment by using a panel data model, with data from 2006 to 2015. The efficiency analysis revealed low levels of overall and divisional efficiencies, highlighting the importance of evaluating efficiency over time, and of considering the providers’ internal structure, to identify inefficiencies that may compromise the achievement of regulatory objectives. The regression results indicate that the impact on the overall and divisional efficiencies depends on the choice of regulatory incentives, the intensity of the application of those incentives, and even the number of regulatory authorities.