Consistency in Performance Rankings: The Peru Water Sector

Abstract

Regulators can utilize a number of alternative methodologies for comparing firm efficiency, but these approaches need to be robust to be accepted by stakeholders. This study evaluates the consistency of water utility performance rankings for Peruvian water utilities. The results indicate that Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis yield similar rankings in this case. In addition, the techniques have comparable success for identifying the best and worst performing utilities. However, these rankings based on sophisticated statistical techniques are not highly correlated with those developed by the Peruvian water regulator (SUNASS). This result does not invalidate the performance rankings obtained by the regulator, since those rankings are based on more dimensions of utility performance. However, they illustrate the importance of developing sound techniques for identifying weak utilities. Improvements in sector performance require that benchmarking be given greater attention than in the past.

Keywords: Water Utility Performance, Data Envelopment Analysis, Stochastic Frontier Analysis