Publication: Economies of Density, Scale and Scope in the Water Supply and Sewerage Sector: A Study of Four Developing and Transition Economies
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Date
2008
ISSN
0922680X
Published
2008
Author(s)
Nauges, Celine
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Abstract
Using panel data, we estimate measures of density, scale and scope economies in four countries that differ substantially in their levels of economic development and in their piped water and sewerage coverage: Brazil, Moldova, Romania and Vietnam. We find evidence of economies of scale in Moldova, Romania and Vietnam. In Brazil, we cannot reject the null hypothesis of constant returns to scale. The results of this study show that the cost structure of water and sewerage utilities varies significantly within and between countries and over time.
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Publication Heterogeneity in the Cost Structure of Water and Sanitation Services : A Cross-Country Comparison of Conditions for Scale Economies(2010)The main purpose of this article is to compare the cost structure of water utilities across a set of 14 countries with different levels of economic development. As far as is known, the cross-country perspective is novel in this literature. This article first provides new measures of returns to scale in the water and sanitation sector for a set of countries, most of them from the developing world. It is then shown that the probability of a utility operating under decreasing, constant, or increasing returns to scale depends not only on its characteristics (the volume of water produced in particular), but also on the country's level of economic development (gross national income) and business environment as measured by investor protection, the cost of enforcing contracts and perceptions of corruption.Publication How "Natural" are Natural Monopolies in the Water Supply and Sewerage Sector? Case Studies from Developing and Transition Economies(World Bank, Washington, DC, 2007-02)Using data from the International Benchmarking NETwork database, the authors estimate measures of density and scale economies in the water industry in four countries (Brazil, Colombia, Moldova, and Vietnam) that differ substantially in economic development, piped water and sewerage coverage, and characteristics of the utilities operating in the different countries. They find evidence of economies of scale in Colombia, Moldova, and Vietnam, implying the existence of a natural monopoly. In Brazil the authors cannot reject the 0 hypothesis of constant returns to scale. They also find evidence of economies of customer density in Moldova and Vietnam. The results of this study show that the cost structure of the water and wastewater sector varies significantly between countries and within countries, and over time, which has implications for how to regulate the sector.Publication Demand for Piped and Non-piped Water Supply Services : Evidence from Southwest Sri Lanka(2009)In many countries, water supply is a service that is seriously underpriced, especially for residential consumers. This has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of service provision. Identification of factors driving piped and non-piped water demand is a necessary prerequisite for predicting how consumers will react to such price increases. Using cross-sectional data of 1,800 households from Southwest Sri Lanka, we estimate water demand functions for piped and non-piped households using appropriate econometric techniques. The (marginal) price elasticity is estimated at -0.15 for households exclusively relying on piped water, and at -0.37 for households using piped water but supplementing their supply with other water sources. The time cost elasticity for households relying on non-piped water only is estimated at -0.06 on average, but varying across sources. For both piped and non-piped households, we find evidence of substitutability between water from different sources. We discuss the implications of these results in terms of pricing policy.Publication Has Private Participation in Water and Sewerage Improved Coverage? Empirical Evidence from Latin America(2009)Introducing private sector participation (PSP) into the water and sewerage sectors is difficult and controversial. Empirical studies on its effects are scant and generally inconclusive. Case studies tend to find improvements following privatisation, but they suffer from selection bias and it is difficult to generalise their results. To explore empirically the effects of private sector participation on coverage, we assemble a new dataset of connections to water and sewerage services at the city and province level based on household surveys in Argentina, Bolivia, and Brazil. The household surveys, conducted over a number of years, allow us to compile data before and after the introduction of private sector participation as well as from similar (control) regions did not privatise. Our analysis reveals that, in general, the share of households connected to piped water and sewerage improved following the introduction of private sector participation, consistent with the case study literature. We also find, however, that the share of households connected similarly improved in the control regions, suggesting that private sector participation, per se, may not have been responsible for those improvements. Results are similar when looking only at the poorest households. The share of poor households connected to piped water and sewerage increased similarly in areas both with and without private sector participation, suggesting that--in terms of connections at least--private sector participation did not harm the poor.Publication Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China(2009)At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries. The few studies of inward FDI in developing countries have been hampered by weak measures of environmental stringency and by insufficient data to estimate variation in firm response by pollution intensity. This paper tests for pollution haven behavior by estimating the determinants of location choice for equity joint ventures (EJVs) in China. Beginning with a theoretical framework of firm production and abatement decisions, we derive and estimate a location choice model using data on a sample of EJV projects, Chinese effective levies on water pollution, and Chinese industrial pollution intensity. Results show EJVs in highly-polluting industries funded through Hong Kong, Macao, and Taiwan are attracted by weak environmental standards. In contrast, EJVs funded from non-ethnically Chinese sources are not significantly attracted by weak standards, regardless of the pollution intensity of the industry. These findings are consistent with pollution haven behavior, but not by investors from high income countries and only in industries that are highly polluting. Further investigation into differences in technology between industrial and developing country investors might shed new light on this debate.
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