Mean and Bold? On Separating Merger Economies from Structural Efficiency Gains in the Drinking Water Sector

Tinbergen Institute Discussion Paper No. 07-092/3

33 Pages Posted: 5 Dec 2007

See all articles by K. De Witte

K. De Witte

University of Leuven (KUL); Maastricht University

Elbert Dijkgraaf

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus University Rotterdam, SEOR-ECRi

Date Written: November 27, 2007

Abstract

The Dutch drinking water sector experienced two drastic changes over the last 10 years. Firstly, in 1997, the sector association started with a voluntary benchmarking aimed to increase the efficiency and effectiveness of the sector. Secondly, merger activity arose. This paper develops a tailored nonparametric model to dissect and distinguish the effects on efficiency of these two evolutions. In particular, we adapt Free Disposal Hull (FDH) to estimate robust and conditional non-oriented efficiency estimates. Parametric COLS (Fourier) tests show the robustness of the model with respect to the specification and its variables. We classify the merger economies into scale economies and increased incentives to fight inefficiencies. Although we detect a significant efficiency enhancing effect of benchmarking, we find insignificant merger economies due to the absence of scale economies and the absence of increased incentives to fight inefficiencies.

Keywords: Mergers and acquisitions, efficiency, scale economies, water sector, non-parametric and parametric estimation

JEL Classification: C13, C14, D20, G34, L95

Suggested Citation

De Witte, Kristof and Dijkgraaf, Elbert, Mean and Bold? On Separating Merger Economies from Structural Efficiency Gains in the Drinking Water Sector (November 27, 2007). Tinbergen Institute Discussion Paper No. 07-092/3, Available at SSRN: https://ssrn.com/abstract=1038441 or http://dx.doi.org/10.2139/ssrn.1038441

Kristof De Witte (Contact Author)

University of Leuven (KUL) ( email )

Naamsestraat 69
Leuven, Vlaams Brabant B-3000
Belgium

HOME PAGE: http://www.feb.kuleuven.be

Maastricht University ( email )

Boschstraat 24
Maastricht, Vlaams-Brabant 6211 AX
Netherlands
003216326656 (Phone)

HOME PAGE: http://www.feb.kuleuven.be

Elbert Dijkgraaf

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus University Rotterdam, SEOR-ECRi ( email )

P.O. Box 1738
H 7-34
Rotterdam, 3000 DR
Netherlands
+31 10 4082590 (Phone)
+31 10 4089650 (Fax)

HOME PAGE: http://www.ecri.nl

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