Benchmarking technical efficiency of water utilities in Chile under heterogeneity: A latent class frontier approach

Abstract

Benchmarking the technical efficiency of water utilities is essential for informing evidence-based regulatory decisions. However, conventional performance assessment models often rely on the assumption of homogeneity among utilities. This study addresses this limitation by applying Latent Class Stochastic Frontier Analysis to 22 Chilean water utilities over the period from 2010 to 2017. The average technical efficiency scores for companies in Class 1 and Class 2 were 0.91 and 0.88, respectively. Companies in Class 1 exhibited stable performance over time, with efficiency scores ranging from 0.88 to 0.92. In contrast, companies in Class 2 demonstrated greater variability, with scores ranging between 0.85 and 0.93.