Measuring the efficiency of the urban integrated water service by parallel network DEA: The case of Italy

In 1994 the Galli Law started an in-depth transformation of the Italian urban water industry in search for a better performance. However, after more than two decades, there is still much debate about the appropriateness of the regulatory framework. This paper contributes to this debate carrying out an efficiency analysis of the Italian urban water industry, employing data for fiscal years 2011 and 2017 and an extended parallel network DEA model that allows have a more comprehensive overview of the industry performance. The proposed DEA model addresses the inadequacies in the conventional DEA models because it takes into account the different nature of the three basic services provided by the urban water service utility (drinking water, sewerage, and wastewater treatment), and computes both the efficiencies of such individual basic services, and the global efficiency of the utility. Thus, it provides a more detailed picture and shed new light on the real performance of the Italian water industry. The efficiency analysis indicates that the average global efficiency of the water utilities is still low, although it slightly increased from 2011 to 2017. Efficiency scores calculated using the proposed DEA model result reduced by about 32.6% in 2011 and 15.9% in 2017 in comparison to conventional DEA models. Additionally, the study shows that the efficiency measurements relative to the three basic water services differ largely for several utilities. Findings also suggest that size may support efficiency improvement.