Nontransferable water rights and technical inefficiency in the Japanese water supply industry

This study examines whether the Japanese scheme of nontransferable water rights results in technical inefficiency. Using data on 1280 Japanese retail water suppliers in 2011, technical efficiency is measured via data envelopment analysis. The determinants of this technical efficiency are then examined via a bootstrapped truncated regression model. The estimation results reveal that the nontransferability of water rights leads to technical inefficiency among retail water suppliers. Furthermore, this inefficiency costs about 133.9 billion yen per year, underlining the importance of the Japanese government flexibly reallocating water rights to improve efficiency.