Theory matters! Efficiency measurement and water utilities

As is the case of other infrastructure sectors the availability of efficiency estimation software based on statistical inference – freely distributed via the internet and relatively easy to use – recently inflated the number of corresponding applications in the water sector. The robustness of regulatory measures based on inferences from efficiency measures nevertheless crucially depends on theoretically well-founded estimates. This is illustrated by using an empirical example of an inconsistent technical efficiency frontier for water utilities in Germany.