2011-09: Economies of scale and scope in Australian urban water utilities (Working paper)
View/ Open
Author(s)
Worthington, Andrew C.
Higgs, Helen
Year published
2011
Metadata
Show full item recordAbstract
This paper estimates economies of scale and scope for 55 major Australian urban utilities over the period 2005/06 to 2008/09. Operating and capital costs are specified as a function of chemical and microbiological compliance, water losses, water quality and service, water main breaks, total connected properties, and urban water supplied. The input variables used to help determine water utility costs include the density of properties served and the sourcing of water from bulk suppliers, groundwater, recycling and surface water. The evidence suggests strong economies of scale at relatively low levels of output (50-75% of mean ...
View more >This paper estimates economies of scale and scope for 55 major Australian urban utilities over the period 2005/06 to 2008/09. Operating and capital costs are specified as a function of chemical and microbiological compliance, water losses, water quality and service, water main breaks, total connected properties, and urban water supplied. The input variables used to help determine water utility costs include the density of properties served and the sourcing of water from bulk suppliers, groundwater, recycling and surface water. The evidence suggests strong economies of scale at relatively low levels of output (50-75% of mean output). In terms of product-specific economies of scale (increasing an output in isolation), there is substantially stronger evidence that the operating costs of urban water utilities would benefit from increasing chemical compliance, reducing water quality and service complaints, and increasing the number of connected properties, while capital costs would benefit from reducing water losses and the number of water main breaks. For economies of scope, it is clear that there are substantial cost benefits from the joint production of treated quality water delivered across a network with minimal water losses and main breaks. The main cost advantage at all levels of output is decreasing water losses, and this would appear to benefit both operating and capital costs.
View less >
View more >This paper estimates economies of scale and scope for 55 major Australian urban utilities over the period 2005/06 to 2008/09. Operating and capital costs are specified as a function of chemical and microbiological compliance, water losses, water quality and service, water main breaks, total connected properties, and urban water supplied. The input variables used to help determine water utility costs include the density of properties served and the sourcing of water from bulk suppliers, groundwater, recycling and surface water. The evidence suggests strong economies of scale at relatively low levels of output (50-75% of mean output). In terms of product-specific economies of scale (increasing an output in isolation), there is substantially stronger evidence that the operating costs of urban water utilities would benefit from increasing chemical compliance, reducing water quality and service complaints, and increasing the number of connected properties, while capital costs would benefit from reducing water losses and the number of water main breaks. For economies of scope, it is clear that there are substantial cost benefits from the joint production of treated quality water delivered across a network with minimal water losses and main breaks. The main cost advantage at all levels of output is decreasing water losses, and this would appear to benefit both operating and capital costs.
View less >
Copyright Statement
Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
Note
Economics and Business Statistics
Subject
D24 - Production; Cost; Capital, Total Factor, and Multifactor Productivity; Capacity
C21 - Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions
L95 - Gas Utilities; Pipelines; Water Utilities
Economies of scale
economies of scope
cost efficiency
urban water utilities