Journal
SCIENCE OF THE TOTAL ENVIRONMENT
Volume 544, Issue -, Pages 574-586Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.scitotenv.2015.11.169
Keywords
Bayesian stochastic frontier analysis; Economies of size; Economies of scale; Economies of scope; Water utilities; Portugal
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This study aims to search for economies of size and scope in the Portuguese water sector applying Bayesian and classical statistics to make inference in stochastic frontier analysis (SFA). This study proves the usefulness and advantages of the application of Bayesian statistics for making inference in SFA over traditional SFA which just uses classical statistics. The resulting Bayesian methods allowovercoming some problems that arise in the application of the traditional SFA, such as the bias in small samples and skewness of residuals. In the present case study of the water sector in Portugal, these Bayesian methods provide more plausible and acceptable results. Based on the results obtained we found that there are important economies of output density, economies of size, economies of vertical integration and economies of scope in the Portuguese water sector, pointing out to the huge advantages in undertaking mergers by joining the retail and wholesale components and by joining the drinking water and wastewater services. (C) 2015 Elsevier B.V. All rights reserved.
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