Modeling the Water Supply Costs of the Algerian Municipalities

This study uses a panel data approach to estimate the cost function of production and distribution of drinking water in a set of Algerian municipalities. Our objective is to evaluate the economic performance of Algerian drinking water services after accounting for the characteristics of the network of drinking water distribution, particularly the frequency of drinking water distribution. We estimate a multi-product translog cost function, based on the duality between production and cost functions. The cost function summarizes information on the technological choices available to companies and its structure provides a great deal of information on the nature of the firm’s technology. This approach allows us to evaluate the variations in the cost of an additional unit of production as well as the performance measures, such as economy of scale, economy of production density and elasticity. Overall, our results reveal several useful indicators on the effectiveness of the activities undertaken by the drinking water networks in Algeria.