Cost efficiency in the Portuguese water sector: The case of multimunicipal systems operating at the bulk level

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Economics from the NOVA – School of Business and Economics

The purpose of this paper is to study the cost efficiency of multimunicipal systems operating at the bulk level in the Portuguese water sector. We will use Pooled OLS, Fixed Effects and Stochastic Frontier Analysis (SFA) to study the role of structural variables such as water losses, network density, water sources, quality measures, rainfall and topography in explaining the cost differences among those systems. Moreover, using SFA we determine operators’ efficiency scores. We found that inefficiency of operators remained constant over time. The main source of the distance to the cost frontier is a high degree of inefficiency and not exogenous random shocks.