Privatisation and Efficiency in the UK Water Industry: An Empirical Analysis.

The postprivatization structure of the U.K. water industry involves the separation of environmental services from other outputs previously produced under an integrated system by the publicly-owned water authorities. This paper examines the extent to which the integrated authorities benefited from the joint production. Estimating a dynamic multiproduct cost function from pooled cross-section, time-series quality adjusted data drawn from accounts of the water authorities for the period 1979/80-1987/88, prior to privatization, significant elements of joint production are found. Divestiture of the industry, arguably justified on other criteria, implies the loss of substantial areas of cost complimentary. Copyright 1995 by Blackwell Publishing Ltd