Privatisation and Efficiency in the UK Water Industry: An Empirical Analysis

The post‐privatisation structure of the UK water industry involves the separation of environmental services from other outputs previously produced under an integrated system by the publicly‐owned water authorities. This paper examines the extent to which the integrated authorities benefitted from joint production. Estimating a dynamic multi‐product cost function from pooled cross‐section, time‐series quality adjusted data drawn from the accounts of the water authorities for the period 1979/80–1987/88, prior to privatisation, significant elements of joint production are found. Divestiture of the industry, arguably justified on other criteria, implies the loss of substantial areas of cost complimentary.