AN EXAMINATION OF THE EFFECT OF OWNERSHIP ON THE RELATIVE EFFICIENCY OF PUBLIC AND PRIVATE WATER UTILITIES

The behavior of privately and publicly owned water utilities is examin ed by estimating a generalized variable cost function containing the r egular characteristics of the neoclassical cost function without requi ring that cost minimization subject to market prices be imposed as a m aintained hypothesis. Assuming that unobserved shadow prices reflect t he regulatory environment of the water industry, tests for cost minimi zation are obtained by deriving shadow prices as functions of market p rices. The empirical results provide evidence that public water utilit ies are more efficient than private utilities on average, but are more widely dispersed between best and worst practice.