Direct management or inter-municipal cooperation in smaller municipalities? Exploring cost efficiency and installed capacity in drinking water supply

Abstract

The aim of this study is to examine whether drinking water services are supplied more efficiently, in small municipalities, under direct public provision or through inter-municipal cooperation. This analysis focuses on the use made of installed capacity, examining whether similar-sized municipalities have optimised their fixed infrastructure and/or physical inputs. A sample of 750 Spanish municipalities, each with fewer than 5000 inhabitants, was analysed, with data for the period 2014-2016, using a new order-m directional method with data panel and calculating the technological gap ratio, to evaluate the impact of different management forms on the efficiency obtained, thus measuring the use made of installed capacity. The main results obtained show that municipal direct management is the most cost efficient but that inter-municipal cooperation makes the best use of installed capacity. However, in similar-sized municipalities there are no significant differences in the latter respect according to the management form adopted, and therefore the differences observed in cost efficiency between the two management forms are associated with variable costs.