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  home > latest issue > Abstract: Regulation and Efficiency Incentives: Evidence from the England and Wales Water and Sewerage Industry

Abstract

Regulation and Efficiency Incentives: Evidence from the England and Wales Water and Sewerage Industry

The Review of Network Economics

Vol. 6, Issue 4 - December 2007, pp 425 - 452


Authors
  Fabrizio Erbetta
University of Piemonte Orientale, Faculty of Economics
HERMES, Centre for Research on Regulated Services
E-mail: [email protected]

Martin Cave
Warwick Business School, University of Warwick

Abstract
  This paper evaluates the impact of the tightening in price cap by OFWAT and of other operational factors on the efficiency of water and sewerage companies in England and Wales using a mixture of data envelopment analysis and stochastic frontier analysis. Previous empirical results suggest that the regulatory system introduced at privatization was lax. The 1999 price review signaled a tightening in regulation which is shown to have led to a significant reduction in technical inefficiency. The new economic environment set by price-cap regulation acted to bring inputs closer to their cost-minimizing levels from both a technical and allocative perspective.

Keywords: Water, Regulation, Price cap, Frontier Analysis

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