Sensitivity analysis of efficiency rankings to distributional assumptions: applications to Japanese water utilities

This paper examines the robustness of efficiency score rankings across four distributional assumptions for trans-log stochastic production-frontier models, using data from 1,221 Japanese water utilities (for 2004 and 2005). One-sided error terms considered include the half-normal, truncated normal, exponential, and gamma distributions. Results are compared for homoscedastic and doubly heteroscedastic models, where we also introduce a doubly heteroscedastic variable mean model, and examine the sensitivity of the nested models to a stronger heteroscedasticity correction for the one-sided error component. The results support three conclusions regarding the sensitivity of efficiency rankings to distributional assumptions. When four standard distributional assumptions are applied to a homoscedastic stochastic frontier model, the efficiency rankings are quite consistent. When those assumptions are applied to a doubly heteroscedastic stochastic frontier model, the efficiency rankings are consistent when proper and sufficient arguments for the variance functions are included in the model. When a more general model, like a variable mean model is estimated, efficiency rankings are quite sensitive to heteroscedasticity correction schemes.stochastic production frontier models; Japanese water utilities; heteroscedasticity

Pro-poor water service strategies in developing countries: promoting justice in Uganda’s urban project

Water service to the urban poor presents challenges to political leaders, regulators and managers. We identify technology mixes of yard taps, public water points (with and without pre-paid meters) to meet alternative constraints, and reflecting populations served and investment requirements. Three investment scenarios have different implications for improving water access to over 400,000 citizens in Kampala. One component, pre-paid water meters, can promote social equity and institutional sustainability. If procedural justice is given as much weight as distributive justice in the selection of pro-poor programs, pre-paid meters (the ultimate cost recovery tool) can have a place in the investment plan. The study examines how public stand pipes (and a combination of other options) can meet both financial constraints and social objectives. Financial considerations cannot be wished away when seeking effective strategies for achieving the Millennium Development Goals.Water utility optimization; pro-poor connections; pre-paid meters; cost recovery; Africa; Uganda

Revisiting the strengths and limitations of regulatory contracts in infrastructure industries

This paper evaluates regulation by contract in public-private partnerships (PPPs) in infrastructure services. Although the benefits of competition for the market and of regulatory contracts are widely acknowledged, the literature indentifies several failures in their design. These ‘flaws’ are present in both developed and developing countries and arise in all types of contracts. This study analyses both short and long term contracts, focusing on purely contractual PPPs and institutionalized PPPs (mixed companies). The evidence suggests that for all kinds of contracts, the major problems tend to arise in the preparation of public tender documents: the ‘best’ bidder is not often the winner. The likely results include redistribution in favor of the private partner, weak incentives for high performance, and renegotiation of contracts. Moreover, risks are not allocated correctly nor is effective monitoring ensured. This review of contract procedures and design allows us to draw several implications for policy-makers and to present suggestions and recommendations for improving regulatory contracts.regulation by contract; bidding documents; contract design; risk; monitoring

Quantitative studies of water and sanitation utilities: a literature survey

This paper performs a literature update of quantitative studies of water and sanitation services (WSS). There are 190 studies which use cost or production functions to evaluate the performance of WSS utilities. The studies examine (1) the scale, scope or density economies of utilities in a particular country or region, (2) the influence of ownership on efficiency, (3) the existence and power of incentives associated with different governance systems (including external regulation), and (4) performance assessment (benchmarking). In addition, this paper presents some patterns regarding quantitative methods adopted over time and major trends in results.benchmarking; water and sanitation utilities; literature survey

A meta-regression analysis of benchmarking studies on water utilities market structure

This paper updates the literature on water utility benchmarking studies carried out worldwide, focusing on scale and scope economies. Using meta-regression analysis, the study investigates which variables from published studies influence these economies. Our analysis led to several conclusions. The results indicate that there is a higher probability of finding diseconomies of scale and scope in large utilities; however, only the results for scale economies are significant. Diseconomies of scale and scope are more likely to be found in publicly-owned utilities than when the ownership is mostly private; as would be expected, multi-utilities are more likely to have scale and scope economies.economies of scale; economies of scope; meta-regression analysis; water utilities

Regulation and corporate corruption: new evidence from the telecom sector

This paper examines how government regulation in developing countries affects the form of corruption between business customers and service providers in the telecom sector. We match the World Bank enterprise-level data on bribes with a unique cross-country telecom regulation dataset collected by Wallsten et al. (2004), finding that 1) strong regulatory substance (the content of regulation) and regulatory governance reduce corruption; 2) competition and privatization reduces corruption; 3) the effects of regulatory substance on corruption control are stronger in countries with state-owned or partially state-owned telecoms, greater competition, and higher telecommunication fees; and 4) bureaucratic quality exert substitution effects to regulatory substance in deterring corruption. Overall, our results suggest that regulatory strategies that reduce information asymmetry and increase accountability tend to reduce illegal side-payments for connections.Telecommunications; Regulation; Corruption

Incentives for Residential Water Conservation: Water Price, Revenue, and Consumer Equity in Florida

Economic theory suggests that price incentives can be used to encourage water conservation in residential consumers. Conservation water rates are designed to send price signals that encourage households to reduce discretionary water use in the long term. However, it is not always clear that conservation rates effectively provide meaningful incentives. Utilities themselves may also not have strong incentives to implement conservation rates. If conservation rates have a negative impact on revenue, or if they lead to increased revenue variability, utilities may have a disincentive to use them. In addition, block pricing structures (where unit water rate increases with water usage) may be inequitable, in the sense that the “revenue burden” is borne disproportionately by some customer groups. This may make some rate structures unpopular with consumers and politically unfeasible. Because there is no consensus about what defines conservation rates, they take many forms. In Florida, the two most common are: uniform rates- where customers pay a set fee for each unit of water used, and inclining block rates- where the price per unit becomes progressively higher. Empirical evidence about the incentives provided by various structures is limited. This research has three main objectives. The first is to analyze whether or not the number of price blocks affects the conservation incentives faced by residential consumers. The second is to test for statistical evidence that rate structure effects revenue variability. And, the third is to analyze the impact of different rate structures on consumer equity. Secondary data from sixteen Florida utilities are used to meet the objectives of the study. The sample was originally chosen by Dr. John Whitcomb as a part of his study Florida Water Rates Evaluation of Single-Family Homes (2005). Whitcomb (2005) includes rate information, customer survey results, and empirical data on actual water use for 7,200 households from 1998 to 2003. For the first objective, a descriptive analysis of rate structures is used. Household reductions in water use are compared to corresponding reductions in water bills for all rate structure periods. Larger reductions in corresponding bills indicate stronger conservation price signals. Distribution of utility revenues between volumetric and fixed water and wastewater charges is also examined, and larger share of volumetric charges is linked to a stronger conservation price signal. The second part of the study uses graphical analysis and a simple OLS model to examine rate structure and revenue variability. For the third objective, Gini coefficients and Lorenz curves were used, following Morgan (1987). Households are divided into income groups and usage groups. Gini Coefficients are calculated based on these groups. Lower coefficients indicate a more equitable rate structure. The results indicate that the conservation price signals are strongest for inclining block structures with more than three price blocks. Block structures with three or less price blocks do not send stronger price signals than uniform rate structures. In some cases, the price incentive to reduce water consumption by 40% was stronger for uniform structures than for inclining block structures with three blocks. Within the sample, the price incentive is strongest for inclining block structures with more than three price blocks. Alternatively, the utility revenue distribution results suggest that the number of price blocks is not necessarily a good indicator of how conservation oriented a rate structure is. In several cases, the percentage of revenue from volumetric sources was higher for uniform structures than for block structures. Analysis for objectives two and three will be completed in October 2009. Preliminary results for objective two provide evidence that revenue variability could be a significant disincentive for utilities to adopt conservation rates. While there was no statistical evidence that overall revenue is affected by changes in rate structure, there is some evidence that utility revenue streams are more variable for block structures than for uniform structures. Preliminary objective three results suggest that customer equity is not adversely affected by conservation rates. When divided into income groups, the estimated Gini coefficients for uniform and inclining block rate structures were similar and close to zero, indicating equitable pricing.Conservation, water, price, revenue, equity, Community/Rural/Urban Development, Consumer/Household Economics, Demand and Price Analysis, Environmental Economics and Policy,