Drivers of productivity change in water companies: an empirical approach for England and Wales

In this study, a normalized quadratic cost function was employed to estimate total factor productivity for the water sector in England and Wales over the period 1993-2016. Productivity was then decomposed into technical change and scale effect. Technical change is further broken down into pure technical change, non-neutral technical change, and effects due to scale-augmenting technical change. The water industry increased its productivity annually by 6.1%, with 1.5% corresponding to technical change and 4.5% attributed to the scale effect. Lastly, we discuss some policy implications by linking the productivity results with the regulatory cycle.