COST FUNCTIONS FOR THE WATER INDUSTRY.

This short paper presents some results of an attempt to derive a suitable function to explain unit costs in the water supply industry in England and Wales. The data we used were the latest available at the time of writing. The data, in effect, were for the year 1965-66. It was not possible, because of lack of data, to carry out a time-series analysis to supplement our cross-section findings. At the moment the industry is composed of some 331 undertakings; our sample, which is based on data provided by I.M.T.A.,' covers 162 of those under- takings. In effect, it covers: 67 local authorities; 75 water boards; and 20 water companies. In this paper then we are concerned with the derivation of an industry average cost curve, or function. Although the resulting curve could be similar to the envelope curve, or to part of the envelope curve, as we know it, it will differ from the usual conception of that curve because of the nature of production conditions in the water supply industry. Section II notes the type and characteristics of the four cost functions we have fitted to the data. Section III briefly presents and assesses the statistical results obtained from using those functions. Section IV then makes some comments on the major issue of amalgamation in the light of the statistical results.