Evaluating the Performance of Urban Water Utilities: Robust Nonparametric Approach
Publication: Journal of Water Resources Planning and Management
Volume 140, Issue 9
Abstract
This paper empirically analyzes the efficiency of urban water utilities using state-of-the-art methodology combining data envelopment analysis (DEA) and a two-stage double bootstrap procedure. In the first stage, robust efficiency estimates are obtained with an improved DEA analysis. In the second stage, a truncated regression model and a double bootstrap procedure are used to estimate the effect of a set of environmental variables on unbiased DEA estimates. The findings suggest that the efficiency scores obtained after bias correction are significantly different to the original efficiency estimates. The results also show the existence of a significant relation between efficiency and several environmental variables including the proportion of water sourced from groundwater, customer density, and residential consumption.
Get full access to this article
View all available purchase options and get full access to this article.
Acknowledgments
The author would like to thank the editor and two reviewers for their insightful comments and suggestions. Thanks are also due to Professor Lin Crase and Dr Kristof De Witte for their assistance in this research. Any remaining errors are the sole responsibility of the author.
References
Abbott, M., and Cohen, B. (2009). “Productivity and efficiency in the water industry.” Util. Pol., 17(3–4), 233–244.
Abbott, M., Cohen, B., and Wang, W. C. (2012). “The performance of the urban water and wastewater sectors in Australia.” Util. Pol., 20(1), 52–63.
Andersen, P., and Petersen, N. (1993). “A procedure for ranking efficiency units in data envelopment analysis.” Manage. Sci., 39(10), 1261–1264.
Ashton, J. (2000). “Total factor productivity growth in technical change in the water and sewerage industry.” Serv. Ind. J., 20(4), 121–130.
Barsugli, J., Vogel, J., Kaatz, L., Smith, J., Waage, M., and Anderson, C. (2012). “Two faces of uncertainty: Climate science and water utility planning methods.” J. Water Resour. Plann. Manage., 389–395.
Berg, S., and Marques, R. C. (2011). “Quantitative studies of water and sanitation utilities: A benchmarking literature survey.” Water Pol., 13(5), 591–606.
Byrnes, J. (2013). “A short institutional and regulatory history of the Australian urban water sector.” Util. Pol., 24, 11–19.
Byrnes, J., Crase, L., Dollery, B., and Villano, R. (2010). “The relative economic efficiency of urban water utilities in regional New South Wales and Victoria.” Resour. Energy Econ., 32(3), 439–455.
Cahill, R., and Lund, J. (2013). “Residential water conservation in Australia and California.” J. Water Resour. Plann. Manage., 117–121.
Carvalho, P., and Marques, R. C. (2011). “The influence of the operational environment on the efficiency of water utilities.” J. Environ. Manage., 92(10), 2698–2707.
Charnes, A., Cooper, W., Golany, B., Seiford, L., and Stutz, J. (1985). “Foundations of data development analysis for Pareto-Koopmans efficient empirical production functions.” J. Econometrics, 30(1–2), 91–107.
Charnes, A., Cooper, W., and Rhodes, E. (1978). “Measuring efficiency of decision making units.” Eur. J. Oper. Res., 2(6), 429–444.
Charnes, A., Cooper, W. W., Huang, Z. M., and Sun, D. B. (1990). “Polyhedral cone-ratio DEA models with an illustrative application to large commercial banks.” J. Econometrics, 46(1–2), 73–91.
Charnes, A., Cooper, W. W., and Rhodes, E. (1981). “Evaluating program and managerial efficiency: An application of data envelopment analysis to program follow through.” Manage. Sci., 27(6), 668–697.
Chernick, M. R., and LaBudde, R. A. (2011). An introduction to bootstrap methods with applications to R, Wiley, Hoboken, NJ.
Coelli, T., and Walding, S. (2006). “Performance measurement in the Australian water supply industry: A preliminary analysis.” Performance measurement and regulation of network utilities, T. Coelli and D. Lawrence, eds., Edward Elgar, Cheltenham, U.K., 29–61.
Coelli, T. J., Rao, P., and Battese, G. E. (1998). An introduction to efficiency and productivity analysis, Kluwer Academic, Boston.
Da Cruz, N. F., Marques, R. C., Romano, G., and Guerrini, A. (2012). “Measuring the efficiency of water utilities: A cross-national comparison between Portugal and Italy.” Water Pol., 14(5), 841–853.
De Witte, K., and Marques, R. C. (2010). “Designing performance incentives, an international benchmark study in the water sector.” Cent. Eur. J. Oper. Res., 18(2), 189–220.
Duncan, E., and Elliott, G. (2004). “Efficiency, customer service and financial performance among Australian financial institutions.” Int. J. Bank Market., 22(5), 319–342.
Efron, B. (1979). “Bootstrap methods: Another look at the jackknife.” Ann. Stat., 7(1), 1–26.
Ford, J., and Warford, J. (1969). “Cost functions for the water industry.” J. Ind. Econ., 18(1), 53–63.
Fox, W., and Holfer, R. (1985). “Using homothetic composed error frontiers to measure water utility efficiency.” South. Econ. J., 53(2), 461–477.
Fraquelli, G., and Giandrone, R. (2003). “Reforming the wastewater treatment sector in Italy: Implications of plant size, structure and scale economies.” Water Resour. Res., 39(10), 1293.
Garcia, S., and Thomas, A. (2001). “The structure of municipal water supply costs: Application to a panel of French local communities.” J. Productivity Anal., 16(1), 5–29.
García-Sánchez, I. M. (2006). “Efficiency measurement in Spanish local government: The case of municipal water services.” Rev. Pol. Res., 23(2), 355–371.
Hall, M., West, J., Lane, J., de Haas, D., and Sherman, B. (2009). “Energy and greenhouse gas emissions for the SEQ water strategy.” Urban Water Security Research Alliance Technical Rep. No. 14, CSIRO, City East, QLD.
Kneip, A., Simar, L., and Wilson, P. W. (2003). “Asymptotics for DEA estimators in non-parametric frontier models.” Technical Rep. No. 0323, IAP Statistics Network, Interuniversity Attraction Pole, Belgium.
Kneip, A., Simar, L., and Wilson, P. W. (2008). “Asymptotics and consistent bootstraps for DEA estimators in non-parametric frontier models.” Econometric Theory, 24(6), 1663–1697.
Marques, R., Berg, S., and Yane, S. (2013). “Nonparametric benchmarking of Japanese water utilities: Institutional and environmental factors affecting efficiency.” J. Water Resour. Plann. Manage., (in press).
Mbuvi, D., Witte, K. D., and Perelman, S. (2012). “Urban water sector performance in Africa: A step-wise bias-corrected efficiency and effectiveness analysis.” Util. Pol., 22, 31–40.
National Water Commission. (2009). “National performance framework: 2008-09 urban performance reporting indicators and definitions handbook.” Water Services Association, Canberra.
National Water Commission. (2012). “National performance report 2010-11: Urban water utilities.” National Water Commission and Water Services Association of Australia, Canberra.
National Water Commission. (2013). “National performance report 2011–12: Urban water utilities.” The National Water Commission, the Water Services Association of Australia and the NWI parties, Canberra.
Nauges, C., and van den Berg, C. (2007). “How “natural” are natural monopolies in the water supply and sewerage sector? Case studies from developing and transition economies.” World Bank Policy Studies 4137, Washington, DC.
Norton, J., and Weber, W. (2009). “Water utility efficiency assessment using a data envelopment analysis procedure.” J. Infrastruct. Syst., 80–87.
Nyman, J. A., and Bricker, D. L. (1989). “Profit incentives and technical efficiency in the production of nursing home care.” Rev. Econ. Stat., 71(4), 586–594.
Renzetti, S., and Dupont, D. P. (2009). “Measuring the technical efficiency of municipal water suppliers: The role of environmental factors.” Land Econ., 85(4), 627–636.
Romano, G., and Guerrini, A. (2011). “Measuring and comparing the efficiency of water utility companies: A data envelopment analysis approach.” Util. Policy, 19(3), 202–209.
Simar, L., and Wilson, P. W. (2000). “Statistical inference in nonparametric frontier models: The state of the art.” J. Productivity Anal., 13(1), 49–78.
Simar, L., and Wilson, P. W. (2007). “Estimation and inference in two stage semi-parametric models of productive efficiency.” J. Econometrics, 136(1), 31–64.
Torres, M., and Morrison Paul, C. J. (2006). “Driving forces for consolidation or fragmentation of the US water utility industry: A cost function approach with endogenous output.” J. Urban Econ., 59(1), 104–120.
Tupper, H. C., and Resende, M. (2004). “Efficiency and regulatory issues in the Brazilian water and sewage sector: An empirical study.” Util. Pol., 12(1), 29–40.
Wilson, P. W. (1993). “Detecting outliers in deterministic nonparametric frontier models with multiple outputs.” J. Bus. Econ. Stat., 11(3), 319–323.
Wilson, P. W. (2008). “FEAR: A software package for frontier efficiency analysis with R.” Soc. Econ. Plann. Sci., 42(4), 247–254.
Worthington, A. (2011). “Productivity, efficiency and technological change in Australia’s urban water utilities.” National Water Commission, Canberra.
Worthington, A. C., and Dollery, B. E. (1999). “Fiscal illusion and the Australian local government grants process: How sticky is the flypaper effect?” Public Choice, 99(1–2), 1–13.
Zhu, J. (2003). Quantitative models for performance evaluation and benchmarking: Data envelopment analysis with spreadsheets and DEA excel solver, Kluwer Academic Publishers, Norwell.
Information & Authors
Information
Published In
Journal of Water Resources Planning and Management
Volume 140 • Issue 9 • September 2014
Copyright
© 2014 American Society of Civil Engineers.
History
Received: Feb 7, 2013
Accepted: Jun 24, 2013
Published online: Jun 26, 2013
Published in print: Sep 1, 2014
Discussion open until: Sep 30, 2014
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.