title: Estimating size and scope economies in the Portuguese water sector using the Bayesian stochastic frontier analysis.
abstract: This study aims to search for economies of size and scope in the Portuguese water sector applying Bayesian and classical statistics to make inference in stochastic frontier analysis (SFA). This study proves the usefulness and advantages of the application of Bayesian statistics for making inference in SFA over traditional SFA which just uses classical statistics. The resulting Bayesian methods allow overcoming some problems that arise in the application of the traditional SFA, such as the bias in small samples and skewness of residuals. In the present case study of the water sector in Portugal, these Bayesian methods provide more plausible and acceptable results. Based on the results obtained we found that there are important economies of output density, economies of size, economies of vertical integration and economies of scope in the Portuguese water sector, pointing out to the huge advantages in undertaking mergers by joining the retail and wholesale components and by joining the drinking water and wastewater services.
authors.affiliation: Computational Modelling in Engineering and Geophysics Laboratory (LAMEMO), Department of Civil Engineering, COPPE, Federal University of Rio de Janeiro, Av. Pedro Calmon - Ilha do Fundão, 21941-596 Rio de Janeiro, Brazil; Center for Urban and Regional Systems (CESUR), CERIS, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais, 1049-001 Lisbon, Portugal. Electronic address: pedrocarv@coc.ufrj.br.
authors.forename: Pedro
authors.initials: P
authors.lastname: Carvalho
authors.affiliation: Center for Urban and Regional Systems (CESUR), CERIS, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais, 1049-001 Lisbon, Portugal. Electronic address: pedro.c.carvalho@tecnico.ulisboa.pt.
authors.forename: Rui Cunha
authors.initials: RC
authors.lastname: Marques
keywords: Bayesian stochastic frontier analysis; Economies of scale; Economies of scope; Economies of size; Portugal; Water utilities