Capturing the environment, a metafrontier approach to the drinking water sector. CES Discussion Paper Series DPS 08.04

Environmental factors add complexity to the comparison between specific activities or entire entities. Decision making units with an inferior performance are tempted to invoke that their organization is ``different'' from the others in the data set. By reinterpreting and extending the metafrontier literature, we propose an all-embracing concept to fully capture the operational environment. We suggest the ``Group Specific Technical Efficiency'' as a new measure to assess the overall efficiency of a utility while allowing for environmental differences. A real-world example of drinking water utilities from five different countriesillustrates the concept.