Water services in Italy: implementation of the reform and efficiency of providers

The paper investigates the organization of the Italian water sector in the light of the reforms of public utilities. The aim is to examine the degree of implementation of the water sector reform (the so-called Galli Law of 1994) and assess the performance of operators through a study of their financial indicators and a non-parametric efficiency analysis. The information sources include two Bank of Italy surveys carried out in 2007 on local public water authorities and local water service providers. Financial indicators point to a low return on equity: for more than half of the firms it is lower than the risk-free interest rate. The non-parametric efficiency analysis does not reveal significant economies of scope and highlights a certain degree of variability of technical efficiency scores. This suggests that there is room for efficiency gains through the introduction of comparative competitive mechanisms such as the yardstick competition.