Mean and bold? On separating merger economies from structural efficiency gains in the drinking water sector

The Dutch drinking water sector experienced two drastic changes over the last 10 years. Firstly, the sector association started a voluntary benchmarking aimed to increase the efficiency and effectiveness of the sector. Secondly, merger activity arose. This paper develops a nonparametric model to dissect and distinguish the effects on efficiency of these evolutions. Parametric corrected ordinarily least squares (Fourier) tests show the robustness of the model with respect to the specification and its variables. Although detecting an efficiency enhancing effect of benchmarking, we find insignificant merger economies due to the absence of scale economies and the absence of increased incentives to fight inefficiencies.