Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach

Public utilities could improv e their ef f iciency by pursuing specif ic strategies, such as growth, div ersif ication of inv estments, or serv ing mainly high densely areas. For example, in the water sector, economies of scope and scale both appear possible, but extant literature does not of f er clear or consensual f indings. To address this lack of clarity , this article inv estigates the potential f or ef f iciency improv ement in the div erse Italian water sector, which comprises utilities of v arious sizes, operating in areas with v arious population densities and organized as mono- or multi-utilities. Technical and f inancial data f rom 64 dif f erent utilities were collected and then analy zed with a two-stage data env elopment analy sis approach to rev eal the impacts of dif f erent operational and exogenous v ariables on ef f iciency , including f irm size, the degree of inv estment div ersif ication, and customer density . The results obtained conf irm the existence of all three ty pes of economies (scale, scope and density ), albeit with dif f erent impacts f or each DEA score.