PRIVATISATION AND EFFICIENCY IN THE UK WATER INDUSTRY: AN EMPIRICAL ANALYSIS

Authors

  • Lester C. Hunt,

  • Edward L. Lynk


  • *The authors are grateful to a referee and David Bevan for comments and to Mr. J. Panting of Southern Water, Rita Morgan at the CIPFA Library and staff at the OFWAT Library, for assistance. We are also grateful for discussion with members of the Drinking Water Inspectorate, the NRA and Her Majesty's Pollution Inspectorate, concerning data availability, and to Chris Bolt, Head of Economic Regulation at OFWAT. Naturally, any errors contained in the paper are the authors' responsibility.

Abstract

ABSTRACTS

The post-privatisation structure of the UK water industry involves the separation of environmental services from other outputs previously produced under an integrated system by the publicly-owned water authorities. This paper examines the extent to which the integrated authorities benefitted from joint production. Estimating a dynamic multi-product cost function from pooled cross-section, time-series quality adjusted data drawn from the accounts of the water authorities for the period 1979/80–1987/88, prior to privatisation, significant elements of joint production are found. Divestiture of the industry, arguably justified on other criteria, implies the loss of substantial areas of cost complimentary.

Ancillary