Public utility planning and cost efficiency in a decentralized regulation context: the case of the Italian integrated water service |
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Authors: | Graziano Abrate Fabrizio Erbetta Giovanni Fraquelli |
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Institution: | (1) Faculty of Economics, University of Piemonte Orientale, Via Perrone 18, 28100 Novara, Italy;(2) HERMES, Via Real Collegio 30, 10024 Moncalieri, TO, Italy;(3) Ceris-CNR and HERMES, Via Real Collegio 30, 10024 Moncalieri, TO, Italy;; |
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Abstract: | The reformed Italian water and sewerage industry has several distinctive features. It is based on a decentralized structure
where local authorities are entitled to define detailed long-term budget plans that claim to provide efficiency incentives
to operating suppliers. Unlike previous studies, this paper analyzes the cost efficiency embedded in these budget plans to
evaluate the actual capability of local regulators to adequately orientate firm performance. Several panel data cost frontier
models were estimated that incorporate diverse specifications for inefficiency and unobserved heterogeneity terms. The results
indicate that the decentralized planning mechanism applied in Italian water and sewerage industry regulation failed in fulfilling
the declared goal and further highlights that the time-invariant terms are the prevailing source of cost differences, which
may conceal a structural component attributable to persistent inefficiency. |
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