Measuring the efficiency of wastewater services through Data Envelopment Analysis.

Area of Science:

• Environmental Economics
• Public Utilities Management
• Water Resource Management

Background:

• Operational efficiency in European Union water utilities is often suboptimal.
• Industry restructuring, including consolidation and vertical integration, is occurring to reduce costs.
• The existence of economies of scale and scope, and the impact of customer density, remain debated in the water sector.

Purpose of the Study:

• To investigate the effects of firm size, scope (water and wastewater services), and population density on wastewater utility efficiency in Denmark.
• To analyze the relationship between operational structure and efficiency using a data envelopment analysis approach.
• To provide empirical insights into factors driving efficiency in the Danish wastewater industry.

Main Methods:

• A two-stage Data Envelopment Analysis (DEA) was employed.
• The study analyzed data from the Danish wastewater industry.
• Key variables included firm size, vertical integration, and population density.

Main Results:

• Vertical integration and higher population density (over 100 persons/km of sewer) positively impact wastewater utility efficiency.
• Firms combining water and wastewater services demonstrate improved efficiency.
• Firm size did not significantly influence global efficiency, but technical pure efficiency decreased with increasing size.

Conclusions:

• Vertical integration and population density are key drivers of efficiency in the Danish wastewater sector.
• Combining water and wastewater services offers efficiency gains.
• While larger firms do not achieve better overall efficiency, understanding the nuances of technical efficiency is crucial for industry optimization.