Utility Governance and Why Consolidations May Not Deliver: Lessons from Central and Eastern Europe

Michael Klien (Austrian Institute of Economic Research)

Abstract: We analyze the effect of recent consolidations of water utilities in Central and Eastern Europe on cost. Unlike a large part of the existing literature we distinguish economies of scale from real consolidation effects. While related, the empirical analysis shows that the former does not guarantee cost savings through consolidations. On the contrary, consolidations appear to have increased unit costs on average. While part of the findings may be explained by technological reasons such as dis-economies of scale for large utilities, we discuss how fragmented ownership and reduced political accountability may be responsible why gains from economies of scale do not materialize.

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