Economies of Scale and Scope in Australian Urban Water Utilities

29 Pages Posted: 18 May 2011

Date Written: May 16, 2011

Abstract

This paper estimates economies of scale and scope for 55 major Australian urban utilities over the period 2005/06 to 2008/09. The models used to specify operating and capital costs as a function of chemical and microbiological compliance, water losses, water quality and service, water main breaks, total connected properties, and urban water supplied. The input variables used to help determine water utility costs include the density of properties served and the sourcing of water from bulk suppliers, groundwater, recycling and surface water. In terms of economies of scale, the evidence suggests strong economies of scale at relatively low levels of output (50-75% of mean output). In terms, of product-specific economies of scale (increasing an output in isolation), there is substantially stronger evidence that the operating costs of urban water utilities would benefit from increasing chemical compliance, reducing water quality and service complaints, and increasing the number of connected properties, while capital costs would benefit from reducing water losses and the number of water 15 main breaks. For economies of scope, it is clear that there are substantial cost benefits from the joint production of treated quality water delivered across a network with minimal water losses and main breaks. The main cost advantage at all levels of output is decreasing water losses, and this would appear to benefit both operating and capital costs.

Keywords: Economies of Scale, Economies of Scope, Cost Efficiency, Urban Water Utilities

JEL Classification: C21, D24, L95

Suggested Citation

Worthington, Andrew C. and Higgs, Helen, Economies of Scale and Scope in Australian Urban Water Utilities (May 16, 2011). Available at SSRN: https://ssrn.com/abstract=1843786 or http://dx.doi.org/10.2139/ssrn.1843786

Andrew C. Worthington (Contact Author)

Griffith University ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia
+61 (0)7 3735 4273 (Phone)
+61 (0)7 3735 3719 (Fax)

Helen Higgs

Griffith University ( email )

170 Kessels Road
Nathan, QLD 4111
Australia
61737357732 (Phone)
61737353719 (Fax)

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