Estimating the Relative Efficiency of Brazilian Publicly and Privately Owned Water Utilities: A Stochastic Cost Frontier Approach

Abstract

This paper assesses cost efficiencies of Brazilian public and private companies of water supply. To measure the efficiency, we used a stochastic frontier model derived from the translog family – a specification similar to a Cobb-Douglas including a quadratic term in log output. The model parameters are estimated by maximum likelihood using Brazilian data for the year 2002. Statistical inference leads to the conclusion that there is no evidence that private firms and public firms are significantly different in terms of efficiency measurements.