What is Most Productive Scale Size

In this chapter, Data Envelopment Analysis is employed in a particular perspective, as the authors conduct an evaluation of the efficiency performance of regulatory agencies. The Italian water sector regulation, as it was organized until 2010, with high fragmentation of the regulatory activity (92 regulators over the country), is particularly suitable for benchmarking analysis. The ratio of this approach relies on the fact that regulators, as other public entities, are resource-consuming operators whose cost ultimately burdens the consumers. Therefore, it is relevant to test whether they operate efficiently. The authors run several DEA-based models, including different sets of variables and assuming different orientation. From the empirical analysis, a relevant “pure” technical inefficiency (VRS) emerges. A secondary but not negligible role is also played by the scale effect, with some interesting considerations related to the optimal OTAAs size.