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Title: Profit change and its drivers in the English and Welsh water industry: is output quality important?
Authors: Maziotis, Alexandros
Saal, David S.
Thanassoulis, Emmanuel
Molinos-Senante, Maria
Keywords: DEA
Index numbers
Profit decomposition
Water and sewerage industry
Issue Date: 2014
Publisher: © IWA Publishing
Citation: MAZIOTIS, A. ... et al, 2014. Profit change and its drivers in the English and Welsh water industry: is output quality important?. Water Policy, 18 (3), wp2014151
Abstract: The assessment of the profit change over time and its drivers is essential to analyse firms’ financial performance. This paper investigates profit change and its components for the 10 English and Welsh water and sewerage water companies over the period 1991–2008 and three regulatory sub-periods. Profit changes and their drivers are computed following two approaches, namely without controlling for water and sewerage quality issues and after decomposing the output effect into high quality and low quality output effect. In both cases, profit change is decomposed into various factors such as quantity and price effect, technical change, efficiency change, resource mix, product mix, and scale effect. Profit change over the whole period was negative; with the substantial negative price effect being the main driver, which outstripped the positive quantity effect. This negative profit change was significantly marked from 2000 to 2005 while in the sub-period 1994–2000, which covers the 1994 price review, the profit change was positive. A further decomposition illustrated the significant negative impact of the input price and scale effects on profit changes. The methodology and conclusions of this paper are of great interest for both regulators and water utilities managers to improve future performance.
Description: This paper is closed access.
Sponsor: The authors would like to express their gratitude for the support of the Economic and Social Science Research Council as well as the Office of Water Services (Ofwat). María Molinos-Senante would like to thank Generalitat Valenciana (APOSTD/2013/110) for financial support.
Version: Published
DOI: 10.2166/wp.2014.151
URI: https://dspace.lboro.ac.uk/2134/21947
Publisher Link: http://dx.doi.org/10.2166/wp.2014.151
ISSN: 1366-7017
Appears in Collections:Closed Access (Economics)

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