Schmidt, E., Glass, A.J. orcid.org/0000-0002-5984-7666, Kenjegalieva, K. et al. (1 more author) (2025) Regulation of regional water companies and spatial dependence. International Journal of the Economics of Business. ISSN 1357-1516
Abstract
As water companies in England and Wales are monopolies, their costs and maximum prices are regulated. This involves the regulator (Ofwat) setting efficient base cost allowances for the companies. To calculate these allowances, Ofwat uses non-spatial cost models to benchmark the companies’ cost efficiencies. There are parallels between companies’ supply areas and the spatial dependence between neighbouring European NUTS regions. To account for the spatial dependence between neighbouring companies’ costs, we augment Ofwat’s models with spatially lagged independent variables. In some models a spatial variable is significant. We, therefore, suggest using a mix of spatial and non-spatial models to set the aforementioned allowances. This would change the financial environment some companies face in the next 5-year regulatory period (2025–30). Specifically, this would lead to increases (decreases) in the allowances of some companies and, other things unchanged and in turn, increases (decreases) in the maximum prices they can charge.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2025 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. |
Keywords: | Public utilities; Regulation and water; Maximum prices; Cost efficiency; Spatial econometrics |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Funding Information: | Funder Grant number INNOVATE UK 99611 |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 31 Jan 2025 11:10 |
Last Modified: | 03 Feb 2025 09:57 |
Status: | Published online |
Publisher: | Taylor and Francis Group |
Refereed: | Yes |
Identification Number: | 10.1080/13571516.2025.2456249 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:222527 |
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