Abstract

Many regulators employ frontier techniques to measure the performance of regulated monopolistic companies. This study estimates the cost efficiency of the water sector using the stochastic non-parametric envelopment of data (StoNED) method which brings together the qualities of both data envelopment analysis (DEA) and stochastic frontier analysis (SFA). This technique is applied to several Chilean private and public water companies without and with the inclusion of several environmental variables. The results indicated that the water industry demonstrated high levels of cost efficiency. Based on average results, it appeared that the public water company performed slightly better than private ones, with full private water companies being more efficient than concessionary. However, the analysis of the trend in companies' efficiency revealed that full private water companies' efficiency increased over the years 2010-2018, whereas the opposite was true for the public water company. It is also found that environmental variables might have a higher impact on public water company costs and inefficiency than private ones.