The Impact of Regulation on Cost Efficiency: An Empirical Analysis of Wisconsin Water Utilities

Authors: Aubert, Cécile¹; Reynaud, Arnaud²

Source: Journal of Productivity Analysis, Volume 23, Number 3, July 2005 , pp. 383-409(27)

Publisher: Springer

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Abstract:

The impact of regulation of efforts to minimize costs has been widely discussed, but remains difficult to measure. The sophisticated regulation of water utilities in Wisconsin allows us to attempt such on assessment since different firms can be under different regulatory regimes (price cap or rate-of-return) in the same geographical area at the same time. To measure the impact of regulation on efficiency, we use a stochastic cost frontier approach defining the unobservable efficiency of a water utility as a function of exogeneous variables. Using a panel of 211 water utilities observed from 1998 to 2000, we show that their efficiency scores can be partly explained by the regulatory framework.

Keywords: public utility regulation; stochastic cost frontier; efficiency

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s11123-005-2216-8

Affiliations: 1: Départment Economie Appliquée, Université Paris Dauphine, pl. du Maréchal de Lattre, F-75 016, Paris, France, Email: Cecile.Aubert@dauphine.fr 2: LERNA, Université Toulouse 1, Manufacturer des Tabacs - Bât.F, 21 allée de Brienne, F-31000, Toulouse, France, Email: areynand@toulouse.inra.fr

Publication date: 2005-07-01