Water Supply: The cost structure of water utilities in Switzerland

This paper estimates a translog cost function for Swiss water utilities. From the cost function, we are able to estimate measures of marginal costs as well as economies of production density, customer density and scale, which are important determinants in water policies, such as planning and water tariffs. In order to explore the determinants of water supply costs, their structure and composition, the translog cost function does not only include output and input prices, but further integrates environmental factors such as the proportion of households among customers and water losses. We find moderate returns to production density, which decrease with the size of the utility.