Comparative analysis of private and public provision of the water and waste services by the Italian municipalities

Author/s Giuseppe Cinquegrana, Serena Migliardo, Domenico Sarno
Publishing Year 2017 Issue 2016/3 Language English
Pages 28 P. 149-176 File size 303 KB
DOI 10.3280/EP2016-003006
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

This paper investigates the behavior of private and publicly-owned corporations providing services in local industries that have undergone restructuring interventions since the Nineties in order to promote market contestability. Based on the approaches arising from the transaction costs theory, the paper proposes a comparative analysis of the economic and financial efficiency of a sample of local utilities supplying services in the water and waste industries, observed from 2008 to 2010. The efficiency analysis is achieved by measuring the distance from the stochastic frontier of the production costs of each firm, and the financial efficiency analysis through statement ratios. The findings of the study generally confirm the implications of the transaction costs approach and they show a wide convergence trend between privately and publicly owned organizations for the degree of utilization of input as well as for the financial efficiency analysis. There are sometimes slight differentials on the part of public companies, especially for the larger ones, which can be largely explained by the existence of more stringent welfare-oriented objectives.

Keywords: Public and private enterprises, stochastic frontier, efficiency analysis capital investment

Jel codes: D20, H440, L20

  1. Robinson J.A. and Torvik R. (2005). A Political Economy Theory of the Soft Budget Constraint. CEPR Discussion Papers 5274.
  2. Sappington D.E. and Stiglitz J.E. (1987). Privatization, Information and Incentives. Journal of Policy Analysis and Management, 6(4): 5676-582.
  3. Shapiro C. and Willig R.D. (1990). Economic Rationales for Scope of Privatization. In: Suleiman E.N. and Waterbury J. (eds.). The Political Economy of Private Sector Reform and Privatization, Boulder, CO: Westview Press.
  4. Shirley M. and Walsh P. (2000). Public vs. Private Ownership: The Current State of the Debate. World Bank Policy Research Working Paper 2420, Washington, D.C.: World Bank.
  5. Shleifer A. (1998). State versus Private Ownership. Journal of Economic Perspectives, 12(4): 133-150.
  6. Shleifer A. and Vishny R. (1994). Politicians and Firms. Quarterly Journal of Economics, 109(4): 995-1025.
  7. Tadelis S. (2002). Complexity, Flexibility and the Make-or-Buy Decision. American Economic Review, 92(2): 433-437. DOI: 10.1257/000282802320191750
  8. Williamson O. (1975). Markets and Hierarchies. New York: Free Press.
  9. Williamson O. (1985). The Economic Institutions of Capitalism. New York: Free Press.
  10. Willner J. and Parker D. (2007). The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly. Journal of Economics, 90(3): 221-253.
  11. Abrate G., Erbetta F. and Fraquelli G. (2011). Public utility planning and cost efficiency in a decentralized regulation context: the case of the Italian integrated water service. Journal of Productivity Analysis, 35: 227-242.
  12. Abrate G., Erbetta F., Fraquelli G. and Vannoni D. (2014a). The costs of disposal and recycling: An application to Italian municipal solid waste services. Regional Studies, 48(5): 896-909.
  13. Abrate G., Erbetta F., Fraquelli G. and Vannoni D. (2014b). The cost of corruption in the Italian solid waste industry. Industrial and Corporate Change, 24(2): 439-465.
  14. Antonioli B. and Massarutto A. (2012). The Municipal Waste Management Sector in Europe: Shifting Boundaries Between Public Service and the Market. Annals of Public and Cooperative Economics, 83(4): 505-532.
  15. Arcas M.J. and Bachiller P. (2010). Operating Performance of Privatized Firms in Europe: Organizational and Environmental Factors. International Journal of Public Administration, 33: 487-498. DOI: 10.1080/01900692.2010.499236
  16. Bacchiocchi E., Florio M. and Grasseni M. (2005). The Missing Shock: The Macroeconomic Impact of British Privatizations. Applied Economics, 37(14): 1585-1596.
  17. Bajari P. and Tadelis S. (2001). Incentives Versus Transaction Costs: a Theory of Procurement Contracts. Rand Journal of Economics, 32(3): 387-407.
  18. Battese G. and Coelli T. (1992). Frontier Production Functions, Technical Efficiency and Panel Data with Applications to Paddy Farmers in India. Journal of Productivity Analysis, 3: 153-169.
  19. Battese G. and Coelli T. (1995). A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data. Empirical Economics, 20: 325-332.
  20. Bel G. and Costas A. (2006). Do Public Sector Reforms Get Rusty? Local Privatization in Spain. The Journal of Policy Reform, 9(1): 1-24.
  21. Bel G. and Werner M.E. (2008). Does Privatization of Solid Waste and Water Services Reduce Costs? A Review of Empirical Studies. Resources, Conservation and Recycling, 52 (12): 1337-1348.
  22. Bel G., Fageda X. and Warner M.E. (2010). Is Private Production of Public Services Cheaper Than Public Production? A Metaregression Analysis of Solid Waste and Water Services. Journal of Policy Analysis and Management, 29(3): 553-577.
  23. Belotti F., Daidone S., Ilardi G. and Atella V. (2012). Stochastic Frontier Analysis using STATA. CEIS Tor Vergata, Research Paper Series, 10 (12), n. 251, Roma.
  24. Benvenuti M. and Gennari E. (2008). Il servizio idrico in Italia: stato di attuazione della legge Galli ed efficienza delle gestioni. Banca d’Italia Questioni di Economia e Finanza (Occasional papers) n. 23.
  25. Biais B. and Perotti E.C. (2002). Machiavellian Privatization. American Economic Review, 92(1): 240-258. DOI: 10.1257/000282802760015694
  26. Boerner K. (2004). The Political Economy of Privatization: Why Government Want Reforms? Fondazione ENI Enrico Mattei, Turin.
  27. Boycko M., Shleifer A.I. and Vishny R. (1996). A Theory of Privatization. Economic Journal, 106(435): 309-319.
  28. Bripi F., Carmignani A. and Giordano R. (2011). La qualità dei servizi pubblici in Italia. Banca d’Italia Questioni di Economia e Finanza (Occasional papers) n. 22.
  29. Brown T.L. and Potosky M. (2003a). Transaction Costs and Institutional Explanations for Government Service Production Decisions. Journal of Public Administration Research and Theory, 13(4): 441-468.
  30. Brown T.L. and Potosky M. (2003b). Managing Contract Performance: a Transaction Costs Approach. Journal of Policy Analysis and Management, 22(2): 275-297.
  31. Byrnes P., Grosskopf S. and Hayes K. (1986). Efficiency and Ownership: Further Evidence. Review of Economics and Statistics, 68(2): 337-41.
  32. Callan S.J. and Thomas J.M. (2001). Economies of Scale and Scope: a Cost Analysis of Municipal Solid Waste Services. Land Economics, 77(3): 548-560.
  33. Chiades M. and Torrini R. (2008). Il settore dei rifiuti urbani a 11 anni dal decreto Ronchi. Banca d’Italia Questioni di Economia e Finanza (Occasional papers) n. 22.
  34. Coase R.H. (1937). The Nature of the Firm. Economica, 4(16): 386-405.
  35. Demsetz H. (1968). Why Regulate Utilities? Journal of Law and Economics, 11(1): 55-65.
  36. Dijkgraaf E. e Gradus R.H.J.M. (2003). Cost Savings of Contracting Out Refuse Collection. Empirica, 30(2): 149-161.
  37. Estache A. and Rossi M.A. (2002). How Different Is the Efficiency of Public and Private Water Companies in Asia? The World Bank Economic Review, 16(1): 139-148.
  38. Florio M. (2004). The Great Divestiture: Evaluating the Welfare Impact of the British Privatizations 1979-1997. Cambridge and London: MIT Press.
  39. Fox W. and Hofler R. (1986). Using Homothetic Composed Error Frontiers to Measure Water Utility Efficiency. Southern Economic Journal, 53(2): 461-77.
  40. Green W.H. (2008). Econometric Analysis. New Jersey 07458: Prentice Hall.
  41. Grossman S.J. and Hart O.D. (1986). The Cost and Benefit of Ownership: a Theory of Vertical and Lateral Integration. Journal of Political Economy, 94(4): 691-719.
  42. Hart O. (1983). The Market Mechanism as an Incentive Scheme. Bell Journal of Economics, 14(2): 366-382.
  43. Hart O. and Moore J. (1990). Property Right and the Nature of the Firm. Journal of Political Economy, 98(6): 1119-1158.
  44. Hart O., Schleifer A. and Vishny R.W. (1997). The Proper Scope of Government: Theory and an Application to Prison. The Quarterly Journal of Economics, 112(4): 1127-1161.
  45. Laffont J. and Tirole J.J. (1987). Auctioning Incentive Contracts. Journal of Political Economy, 95(5): 921-37.
  46. Laffont J. and Tirole J.J. (1993). A Theory of Incentives in Procurement and Regulation. Cambridge: MIT Press.
  47. Levin J. and Tadelis S. (2010). Contracting for Government Services: Theory and Evidence from U.S. Cities. The Journal of Industrial Economics, 58(3): 507-540.
  48. Massarutto A. (2011). Waste Management. The Brown Side of Green Economy. L’Industria, 2: 245-264. DOI: 10.1430/34907
  49. Massarutto A., Antonioli B. and Ermano P. (2013). Assessing the Impact of Water Service Regulatory Reforms in Italy: A Multidimensional Approach. Water Policy, 15(6): 1046-1063.
  50. Megginson W.L. and Netter J.M. (2001). From State to Market: A Survey of Empirical Studies on Privatization. Journal of Economic Literature, 39(2): 321-389.
  51. Ohlsson H. (2003). Ownership and Production Costs. Choosing Between Public Production and Contracting-Out in the Case of Swedish Refuse Collection. Fiscal Studies, 24(4): 451-476.
  52. Parker D. (2003). Performance, Risk and Strategy in Privatised, Regulated Industries: The UK’s Experience. International Journal of Public Sector Management, 16 (1): 75-100.
  53. Reeves E. and Barrow M. (2000). The Impact of Contracting-Out on the Costs of Refuse Collection Services. The Case of Ireland. Economic and Social Review, 31(2): 129-150.

  • Rationales, performance and governance of public entreprises. Editorial introduction Luc Bernier, Massimo Florio, Johan Willner, in ECONOMIA PUBBLICA 3/2017 pp.5
    DOI: 10.3280/EP2016-003001

Giuseppe Cinquegrana, Serena Migliardo, Domenico Sarno, Comparative analysis of private and public provision of the water and waste services by the Italian municipalities in "ECONOMIA PUBBLICA " 3/2016, pp 149-176, DOI: 10.3280/EP2016-003006