Journal
JOURNAL OF REGULATORY ECONOMICS
Volume 20, Issue 1, Pages 61-90Publisher
KLUWER ACADEMIC PUBL
DOI: 10.1023/A:1011162214995
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After its privatization in 1989, the water and sewerage industry of England and Wales faced a new regulatory regime and implemented a substantial capital investment program aimed at improving water and environmental standards. A new RPI+K regulatory pricing system was designed to compensate the industry for its increased capital costs, encourage increased efficiency, and maintain fair prices for customers. This paper evaluates how successful privatization and the resulting system of economic regulation has been. Estimates of productivity growth, derived with quality adjusted output indices, suggest that despite reductions in labor usage, total factor productivity growth has not improved since privatization. Moreover, total price performance indices reveal that increases in output prices have outstripped increases in input costs, a trend which is largely responsible for the increase in economic profits that has occurred since privatization.
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