Heteroskedastic Stochastic Cost Frontier Approach in the Estimation of Cost Efficiency of Tunisian Water Distribution Utilities

This article has examined the operating cost inefficiencies and economies of scale of Tunisian public water services. We have examined the stochastic frontier model and the fixed effects model. Thus, as formulated, the inefficiency term remains in the model and the fixed effect is intended only to capture the firm specific heterogeneity. Newly proposed true fixed-effects model appears to perform better than the panel data models in distinguishing between non heterogeneity and inefficiency. The results indicate that significant cost inefficiencies are present in the utilities and the economies of scale are found in small-sized utilities