Analysis of variation in productivity of Portuguese water services between 1994 and 2001 using the Malmquist approach

A decision-making unit productivity can be defined as the relationship between the products (outputs) and the production factors consumed (inputs). This article discusses and applies a non-parametric frontier technique to measure productivity based on the Malmquist productivity index (MPI). By means of a case-study applied to the water sector in Portugal, we intend to stress the MPI strengths which are particularly relevant to the economic regulation of the network industries. The productivity study consists of 45 water services comprising around 48% of the Portuguese population and it covers the period 1994–2001. We noticed that the productivity change was negative during this period, particularly due to the production technology change and to the scale efficiency change to a less extent. Conversely, the technical efficiency change was positive and the congestion efficiency change presented an insignificant value.