Efficiency in the Consolidation of the Italian Water Sector

Despite since the mid‐90s the regulation has encouraged horizontal and vertical bundling, the Italian water and sewerage industry is still largely fragmented. This work investigates the potential benefits of the process of consolidation, relying on realistic ex‐ante merger hypotheses. A parametric methodology is used to implement the Bogetoft and Wang 2005’s decomposition of potential gains from mergers (J Prod Anal 23:145–171). When looking at strictly technological aspects, results do not provide univocal evidence in favor or against merger strategies, recommending a case‐by‐case approach in evaluating real merger projects. Moreover, the largest potential gains are due to managerial rather than technological inefficiency, thus their effective ex‐post attainment ultimately depend on the ability to tackle the change and on political will.