Output Quality and Sources of Profit Change in the English and Welsh Water and Sewerage Companies

42 Pages Posted: 12 Dec 2012

See all articles by Alexandros Maziotis

Alexandros Maziotis

Fondazione Eni Enrico Mattei

David S. Saal

Aston University - Aston Business School

E. Thanassoulis

Aston University

Date Written: December 11, 2012

Abstract

This paper investigates the determinants of profit change over the period 1991-2008 for the Water and Sewerage Companies (WaSCs) in the English and Welsh water and sewerage industry. We firstly apply an input oriented profit decomposition approach following the approach of De Witte & Saal (2010). Then, we make allowances for differences in the quality of output, by decomposing the output effect into high quality and low quality output effect. We decompose profit changes into various factors such as quantity and price effect, technical change, efficiency change, resource mix, product mix and scale effect, without and after controlling for quality. In both cases, the positive impact on profit changes came from substantial improvements in technical change, the cost efficient allocation of resources by substituting labor with capital and small improvements in efficiency gains. The input price and scale effect had a significant negative impact on profit changes. This technique is of great interest for regulators to evaluate the effectiveness of regulation and companies to identify the determinants of profit change and improve future performance, even if sample sizes are limited.

Keywords: profit decomposition, productivity, index numbers, DEA, regulation, water and sewerage industry

JEL Classification: Q5

Suggested Citation

Maziotis, Alexandros and Saal, David S. and Thanassoulis, E., Output Quality and Sources of Profit Change in the English and Welsh Water and Sewerage Companies (December 11, 2012). FEEM Working Paper No. 85.2012. Available at SSRN: https://ssrn.com/abstract=2187760 or http://dx.doi.org/10.2139/ssrn.2187760

Alexandros Maziotis (Contact Author)

Fondazione Eni Enrico Mattei ( email )

C.so Magenta 63
Milano, 20123
Italy

David S. Saal

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

E. Thanassoulis

Aston University ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom

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