Does service quality matter in measuring the performance of water utilities?

Quality is a dimension of water services that has been repeatedly omitted in the study of performance of water utilities. In this paper, Data Envelopment Analysis techniques are used to compute both conventional quantity-based and quality-adjusted scores of technical efficiency for a sample of Spanish water utilities. The key assumptions are that a lack of quality (bad quality) can be regarded as a bad output and the existence of a trade-off between quantity and quality. Our main results indicate that quality matters in measuring technical efficiency, the difference between conventional and quality-adjusted evaluations representing the opportunity cost of maintaining quality. Averages and distribution functions significantly differ between both assessments of performance, although water utilities do not seem to rank differently. © 2007 Elsevier Ltd. All rights reserved.