Benchmarking operational efficiency in the integrated water service provision: does contract type matter?

Purpose a benchmarking study to investigate if there is an association between the operational efficiency in the integrated water management industry in Italy and the typology of service providers, and as a consequence, the nature of concession contract. Design/methodology/approach the study is focused on 38 optimal territorial areas (ATOs), e.g a circumscribed geographical area where the provision of integrated water services is considered efficient. It uses Data Envelopment Analysis (DEA) to calculate ATO efficiency and a stepwise regression procedure performed to investigate the effect of contract type on the operational efficiency rate of the ATO. Findings this study shows that there are some inefficiencies in the water service supply industry in Italy. The estimated average pure technical and scale efficiency of ATOs are 92.62% and 93.91%, respectively, while the average technical efficiency is 87.61% and the lowest is slightly higher than 13%. Operational inefficiencies might not be determined by size only. In fact, results show that the water service provider and contract agreement typologies are associated to efficiency. In particular, operational efficiency is higher in those ATOs where the water service supply concession contracts that fit the schemes of the new legislative framework prevail or where the service is mostly provided by a private equity owned or by mixed public-private companies. Research limitations/implications it was assumed that any incremental level of water quality beyond the minimum acceptable threshold as required by law is not important to increase the operation efficiency score; henceforth, no variables measuring the water quality were introduced in the DEA model. The result of the study may be not fully representative of the Italian water service sector, because the unavailability of accurate and consistent public databank in Italy did not allowed to have a larger sample. Practical implications that of private versus public ownership and/or management and the consequent impact on efficiency levels in the water service industry, as competition increases pressure for cost savings and efficiency has been a major question both for scholars and policy-makers. This paper supports the idea that the water service industry reform and the involvement of private actors in the provision of service had a positive effect on the operational efficiency actors in Italy. Originality/value this paper is one of the first in Italy to investigate the association between the operational efficiency of the ATOs and the nature of water service providers and contract agreements used.