| This dissertation provides new analysis and empirical evidence on the structure of the water industry in the U.S. using a multiproduct short-run cost function model. Several models based on the generalized Leontief quadratic functional form are used to perform a cross-section econometric analysis focusing on measures of scale and scope economies in water production, and their variation with the size of service area and number of customers.;The analytical results provided by the base and alternative models confirm the popular notion about the presence of significant scale economies, in terms of output volume, but also reveal the existence of significant diseconomies of size of service area. More specifically, based on the endogenous output model, which provides the most theoretically and empirically reasonable results, the estimated scale economies measure for the average utility is 0.70, which indicates that 1 percent increase in overall production may be obtained with 0.30 percent cost savings on the marginal unit of output, when customer numbers and service area size are kept constant.;If however the size of the service area also expands by 1 percent, in addition to proportional increases in output and number of customer, the costs shift up by 1.32 percent, which is statistically different from 1 and reflects significant diseconomies associated with service area size. More specifically, keeping constant the customer density an the output per customer ratio, for utilities that cover, on average, service areas larger than 61 square miles, and especially the ones that cover areas larger than 230 square miles, the benefits associated with marginal increases in production volume are not enough to offset the diseconomies associated with the distribution of water through extensive service areas.;In sum, this dissertation indicates that any merging and/or "regionalization" policy that targets scale economies in the water utility industry must recognize that the resulting plants will produce larger water volumes, but will also have to cover larger service areas. In other words, in a concentrated or "regionalized" water industry, utilities may be able to exploit scale economies, but these economies may be significantly counteracted by diseconomies associated with water transmission and distribution. |
