Benchmarking service quality in the urban water industry

Providing secure and affordable drinking water and sewerage services is the primary mandate of the urban water industry. Water businesses must balance their service obligations and the quality of service delivered in order to maximize customer value. Being a monopoly industry, the urban water sector’s service levels and associated prices are not driven by competitive market pressures but through the regulatory processes. However, improving service quality often comes at a cost and yardstick regulation requires the evaluation and benchmarking of service quality within an economic efficiency framework. This paper uses a bootstrap Data Envelopment Analysis model to evaluate the service quality performance of the Australian urban water sector from 2009–2010 to 2015–2016. Specifically, the paper models the lack of service quality as undesirable outputs of water production. It estimates the Malmquist-Luenberger productivity index and its efficiency change and technical change components for 50 integrated water and sewerage utilities in Australia. Findings indicate that, overall, the sector’s quality-adjusted productivity has improved after a marked decline in 2010/2011. A comparison of the service quality productivity results with the conventional productivity measure revealed that the conventional analysis tends to underestimate the productivity growth. The paper concludes that benchmarking service quality helps the urban water sector to move from compliance-based regulation to best-practice regulation. © 2019, Springer Science+Business Media, LLC, part of Springer Nature.