Profit and Performance Measurement in the UK Water Industry : Basics, Concepts, Methods

The aim of the book is to evaluate the impact of regulatory price cap schemes on the financial performance of the Water and Sewerage Companies (WaSCs) when the number of observations is small. We applied an index number approach to allow for cross sectional comparisons of relative profitability, productivity and price performance of WaSCs. We also applied a panel index approach across WaSCs over time to decompose unit-specific (temporal) index number based profitability growth as a function of the profitability, productivity and price performance growth achieved by benchmark firms, and the catch-up to the benchmark firm achieved by less productive firms. We finally employed both index numbers and DEA to evaluate various profit drivers such as price changes, productivity changes and activity effect levels on the financial performance of WaSCs over time. We suggest that our approach should be of great interest to researchers who are interested in evaluating the effectiveness of regulation and/or developing effective comparative performance techniques when sample sizes are limited.