Water Losses and Maintenance Investment. An Econometric Model for the Sustainable Management of Water Services

In Italy, there is a large gap between the water supplied to the distribution networks and the water delivered to users. Reducing the dispersion along the aqueduct network has several advantages for water service operators, such as reducing the production and distribution costs of the resource, limiting the volumes of water purchased wholesale, and improving the users’ perception of the service. The aim of the paper is to define an econometric model that allows water utilities to determine the optimal budget to be used to finance the maintenance work required to reduce water losses. The model, which uses a Cobb-Douglas production function with increasing returns to scale, identifies the maximum level of profit that the manager can obtain by investing the optimal amount. The higher profits obtained can be used to self-finance new maintenance. A key parameter is the coefficient of return-on-investment α, which is a measure of the degree of user satisfaction with the service offered. The water tariff is dependent on financial (capital and operating), environmental and resource costs. The model is applied to a water utility in the Campania region (Italy)