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Measuring the marginal costs of reducing water leakage: the case of water and sewerage utilities in Chile


Water leakage in the urban water cycle involves relevant economic, social, and environmental negative impacts. Thus, reducing water leakage is a key challenge for both water regulators and water companies. This study estimated the evolution (2007–2015) of the marginal cost of improving the quality of service in terms of water leakage in the Chilean water industry, which involves full private, concessionary, and public water companies. In water companies, management skills and efforts play an important role in meeting water leakage targets. Thus, this study employed a cost frontier model where it was assumed that unobserved management ability interacts with output and water leakage factors. The results reveal high levels of cost efficiency for the average water company. Management increases outputs and reduces water leakage and, thus, has a positive impact on costs and efficiency. The marginal cost of reducing water leakage is higher for the public water company than for private and concessionary water companies. The average estimated marginal cost of reducing water leakage was 0.349 €/m3, which means that a water company has to spend an extra 0.349 € in operating costs to avoid a cubic meter of water leakage. Some policy implications were discussed based on the results of this study.

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  1. Carvalho et al. (2012), Carvalho and Marques et al. (2014), and Guerrini et al. (2018) differentiate between economies of scale and customer density as follows. Economies of scale measure the reaction of costs to simultaneous changes in volumes of water delivered and number of customer. Economies of customer density measure how costs alter when volumes of water delivered and number of customers change keeping the area or network length constant.


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Availability of data and materials

The datasets generated and/or analyzed during the current study are not publicly available due to that they were developed from the primary sources of data but are available from the corresponding author on reasonable request.

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Authors and Affiliations



AM—conceptualization; data curation; validation; writing (original draft).

AV—formal analysis; methodology; software.

MMS—project administration; resources; writing (review and editing).

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Correspondence to Maria Molinos-Senante.

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Molinos-Senante, M., Villegas, A. & Maziotis, A. Measuring the marginal costs of reducing water leakage: the case of water and sewerage utilities in Chile. Environ Sci Pollut Res 28, 32733–32743 (2021).

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  • Marginal cost
  • Water leakage
  • Unobserved management ability
  • Stochastic cost frontier
  • Chilean water industry