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Price-cap regulation in the English and Welsh water industry: a proposal for measuring productivity performance

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journal contribution
posted on 11.07.2016, 12:04 by Alexandros Maziotis, David SaalDavid Saal, Emmanuel Thanassoulis, Maria Molinos-Senante
Privately owned water utilities typically operate under a regulated monopoly regime. Price-cap regulation has been introduced as a means to enhance efficiency and innovation. The main objective of this paper is to propose a methodology for measuring productivity change across companies and over time when the sample size is limited. An empirical application is developed for the UK water and sewerage companies (WaSCs) for the period 1991-2008. A panel index approach is applied to decompose and derive unit-specific productivity growth as a function of the productivity growth achieved by benchmark firms, and the catch-up to the benchmark firm achieved by less productive firms. The results indicated that significant gains in productivity occurred after 2000, when the regulator set tighter reviews. However, the average WaSC still must improve towards the benchmarking firm by 2.69% over a period of five years to achieve comparable performance. This study is relevant to regulators who are interested in developing comparative performance measurement when the number of water companies that can be evaluated is limited. Moreover, setting an appropriate X factor is essential to improve the efficiency of water companies and this study helps to achieve this challenge.

Funding

The authors would like to express their gratitude for the support of the Economic and Social Science Research Council as well as the Office of Water Services (Ofwat).

History

School

  • Business and Economics

Department

  • Economics

Published in

Utilities Policy

Citation

MAZIOTIS, A. ... et al, 2016. Price-cap regulation in the English and Welsh water industry: a proposal for measuring productivity performance. Utilities Policy, 41, pp.22-30

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2016

Notes

This article was published in the journal, Utilities Policy [© Elsevier Ltd.] and the definitive version is available at: http://dx.doi.org/10.1016/j.jup.2016.04.002

ISSN

0957-1787

Language

en