The German potable water supply industry is regarded highly fragmented, thus preventing efficiency improvements that could happen through consolidation. Focusing on a hypothetical restructuring of the industry, we use a cross-section sample of 364 German water utilities in 2006, applying Data Envelopment Analysis, to analyze the potential efficiency gains from hypothetical mergers between water utilities at the county level. A conditional efficiency framework is applied to account for the water utilities' operating environments. A conditional order-m approach is applied for the detection of potential outlying observations. Merger gains are decomposed into a technical efficiency effect, a harmony effect and a scale effect. The greatest efficiency improvement potentials turn out to result from reducing individual inefficiencies while pure merger gains are found to be low. The results suggest improving incentives for efficient operations in water supply and a consolidation of the smallest water utilities.
Water Supply Horizontal Integration Data Envelopment Analysis Conditional Efficiency Nonparametric Estimation
The final publication is available at Springer via http://dx.doi.org/10.1007/s11123-014-0407-x // This publication was produced as part of the GRASP project, funded by the European Commission through the 7th Framework Programme under contract no. 244725.