Benchmarking operational efficiency in the integrated water service provision: Does contract type matter?

This is a benchmarking study and the purpose of this paper is to investigate if there is any association between operational efficiency in the integrated water management industry in Italy and the typology of service providers, and as a consequence, the nature of concession contract.

The study is focussed on 38 optimal territorial areas (ATOs), e.g. a circumscribed geographical area where the provision of integrated water services is considered efficient. It uses Data Envelopment Analysis (DEA) to calculate ATO efficiency and a stepwise regression procedure performed to investigate the effect of contract type on the operational efficiency rate of the ATO.

This study shows that there are some inefficiencies in the water service supply industry in Italy. The estimated average pure technical and scale efficiency of ATOs are 92.62 and 93.91 percent, respectively, while the average technical efficiency is 87.61 percent and the lowest is slightly higher than 13 percent. Operational inefficiencies might not be determined by size only. In fact, results show that the water service provider and contract agreement typologies are associated with efficiency. In particular, operational efficiency is higher in those ATOs where the water service supply concession contracts that fit the schemes of the new legislative framework prevail or where the service is mostly provided by a private equity owned or by mixed public-private companies.

It was assumed that any incremental level of water quality beyond the minimum acceptable threshold as required by law is not important to increase the operation efficiency score; henceforth, no variables measuring the water quality were introduced in the DEA model. The result of the study may be not fully representative of the Italian water service sector, because the unavailability of accurate and consistent public databank in Italy did not allowed to have a larger sample.

This paper is one of the first in Italy to investigate the association between the operational efficiency of the ATOs and the nature of water service providers and contract agreements used.

This paper is one of the first in Italy to investigate the association between the operational efficiency of the ATOs and the nature of water service providers and contract agreements used.