Efficiency in Brazil's water and sanitation sector and its relationship with regional provision, property and the independence of operators

• We assess the comparative efficiency of Brazil's water and sanitation sector.
• A Stochastic Frontier Analysis (SFA) model for a panel of 127 providers is run.
• We use a database built on the National System of Sanitation Statistics (SNIS).
• We look for efficiency and cost differences between state, municipal and micro-regional companies.
• We explore whether cost structures vary in different regions of the country.

The purpose of this paper is to assess the comparative efficiency of Brazil's water and sanitation sector. We run a Stochastic Frontier Analysis (SFA) model for a panel of 127 providers covering more than 70 percent of the country's urban population in the period 2003–2010. We use a database built on the National System of Sanitation Statistics (SNIS). The model is fitting and shows a modest efficiency average. The study has policy implications in the discussion of state-level run v. municipal-level run, government-owned v. private-provision, and corporatized providers v. dependent ones. The optimal industrial organization of the sector is discussed from the efficiency perspective. We find that regional and micro-regional firms' have lower costs than municipal providers. Administrative independence seems not relevant when explaining the cost structure, but ownership is. The joint provision of water and sanitation results in higher fixed costs compared to water-only operators. We find that there are not regional differences in cost structures. However, there are slight variations in the efficiency levels and in their dispersion in each region. Finally, inefficiency decreased at a rate of 4.9 percent per year during the time frame under study.