Performance of fully private and concessionary water and sewerage companies: a metafrontier approach

Abstract

As many countries have privatized their water industries, there is increasing interest in comparing the efficiency of public and private water and sewerage companies (WaSCs). However, previous studies have not considered that privatization can be carried out following two main approaches: fully private WaSCs, which involve the sale of utilities to the private sector, and concessionary WaSCs, in which only the operation of the services is privatized. This paper investigates, for the first time, the impact of both privatization approaches on the efficiency of WaSCs. In doing so, data envelopment analysis (DEA) was applied. However, unlike traditional models, the metafrontier concept was used in this research as it cannot be assumed that fully private and concessionary WaSCs share the same production frontier. The empirical application focused on the Chilean water industry as it was privatized from 1998 to 2004 following the two approaches described. The results suggest that the performance of fully private WaSCs is better than that of concessionary WaSCs. The conclusions of this study will be of great interest to water authorities worldwide facing the challenge of water industry privatization.