Consolidation as a Regulatory Compliance Strategy: Small Drinking Water Systems and the Safe Drinking Water Act

Despite extensive research and policy initiatives to increase the technical, financial, and managerial capacity of small drinking water systems, there has been little research focusing on understanding how consolidation can increase the overall capacity of the drinking water industry. Consolidation of water systems may be a mechanism that increases regulatory compliance by removing poorly performing systems from the industry and replacing inefficient management and/or capital. The US drinking water system is highly fragmented, with over 50,000 Community Water Systems (CWSs), of which the vast majority are classified as "small" by the US Environmental Protection Agency (EPA). A discrete choice model is employed to determine the characteristics shared by small water systems that are acquired. On average, these acquired firms are small, have frequent drinking water violations, are privately-owned, and purchase their water from another system. These results suggest that consolidation may have an important role to play in increasing overall industry compliance with the Safe Drinking Water Act (SDWA)