Measuring the efficiency of wastewater services through Data Envelopment Analysis

Efficient water management is a priority for the European Union (EU), as the operational efficiency of water utilities in many EU countries is low compared to best practice benchmarks. Several countries are restructuring their water utilities sectors to improve cost savings. Large-scale operations and vertical integration strategies are being promoted to achieve scale and scope economies; however, there are no results in current literature to support the effectiveness of such measures. Additionally, limited data are available on the effect of customer density on costs. This study offers some insight into these issues by using a two-stage Data Envelopment Analysis (DEA) approach to analyse the Danish water industry, with the aim of investigating the presence of scale, scope and density economies in the wastewater segment. Research findings show that the Danish wastewater segment is characterised by scope and density economies: utilities providers that serve more than 100 inhabitants per km of sewerage mains, and contextually offer water and wastewater services, achieve the best standard of efficiency. Scale is shown to have minimal influence on global efficiency, even where purely technical efficiency decreases when company sizes increase.