Reforming the wastewater treatment sector in Italy: Implications of plant size, structure, and scale economies

[1] In the context of the restructuring of the water industry, this work examines the treatment processes of urban wastewaters in Italy, with reference to costs, size, and technology. The operating cost function of 103 plants confirms scope economies from vertical integration and strong economies of scale for the smaller structure, confirming the benefits coming from the aggregation of the existing little firms. A minimum efficient size at about 100,000 inhabitants, however, inhibits the creation of large monopolies at a local level and enables the maintenance of indirect competition. Among the explanatory variables of running costs, the pollution load of the input wastewater takes on a high statistical significance and suggests environmental prevention, while the strong impact of sludge concentration means it should be considered in the new tariff systems. The recent introduction of advanced treatments is expensive, but the costs are balanced by a notable improvement in the pureness of the effluent waters. As for general environmental policies, it is necessary to find a good compromise between the need to improve the effectiveness of the existing plants and the investments in areas where the water treatment service is still inexistent.