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sforschung Do Organizational Form Matter ? r Wirtschafts Innovation and liberalization in the German wastewater sector hes Institut f ch-Westflisch Harald Tauchmann (RWI Essen) Rheinisc Mark Oelmann (WIK) k O l ( ) Hartmut Clausen

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SLIDE 1

sforschung

Do Organizational Form Matter ?

ür Wirtschafts

Innovation and liberalization in the German wastewater sector

hes Institut fü ch-Westfälisch

Harald Tauchmann (RWI Essen) k O l ( )

Rheinisc

Mark Oelmann (WIK)

Hartmut Clausen (RWI Essen)

8th Conference on Applied Infrastructure Research (INFRADAY 2009) Berlin, 9-10 October, 2009

1 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 2

sforschung

Project

ür Wirtschafts hes Institut fü

This work originates from the research project “Einflussfaktoren und Handlungsbedarfe für Innovationen zum

ch-Westfälisch

Einflussfaktoren und Handlungsbedarfe für Innovationen zum nachhaltigen Wirtschaften - Möglichkeiten und Grenzen einer nachhaltigen Wasserwirtschaft“

Rheinisc

nachhaltigen Wasserwirtschaft , funded by the German Federal Ministry of Education and h (BMBF) d th h i iti ti research (BMBF) under the research initiative "Rahmenbedingungen für Innovationen zum nachhaltigen Wirtschaften :[riw]"

2 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 3

sforschung

Structure

ür Wirtschafts hes Institut fü

  • 1. Background & research question
  • 2. Survey description

ch-Westfälisch

y p

  • 3. Econometric model

Rheinisc

  • 4. Estimation results
  • 5. Policy implications

3 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 4

sforschung

Background

ür Wirtschafts

Technical standard of German water services

hes Institut fü

Technical standard of German water services generally high Unsolved Problems e.g.:

ch-Westfälisch

Unsolved Problems e.g.:

  • Partly outdated grid-type network requiring enormous

future investment

Rheinisc

  • Some environmental problems not addressed yet (e.g.

hormones, drug residua) , g )

  • Raising waste water charges/(alleged) economic

inefficiency

 Innovations considered as possible mean to solve such

problems

4 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 5

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Policy Background

ür Wirtschafts hes Institut fü

  • Liberalization of telecommunication and electricity

markets in the 1990s

ch-Westfälisch

  • Discussion about liberalizing water and waste water

services too

Rheinisc

  • No decision to substantially open the sector to some

form of competition

  • How to improve performance of the sector alternatively?
  • Innovations might be such an alternative (cf state
  • Innovations might be such an alternative (cf. state

ministers of economics)

5 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 6

sforschung

Research Questions

ür Wirtschafts

h d i f fi ’ i i i h

hes Institut fü

  • What are determinants of firms’ innovativeness in the

waste water sector and thus can innovativeness be fostered by policy measures?

ch-Westfälisch

fostered by policy measures?

  • Are innovations in fact substitutes to the introduction of
  • me fo m of
  • mpetition

the th n

  • mplement ?

Rheinisc

some form of competition, rather than complements?

  • Might some form of competition and/or private

commitment be a driver for innovations?

  • Do we get a similar result like Haug (2008) who analyzed

Do we get a similar result like Haug (2008) who analyzed for the water sector that the more independent utilities are of municipal influence the more efficient they are?

6 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 7

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The Role of Local Governments

ür Wirtschafts hes Institut fü

  • Important role of municipalities/waste water disposal

sovereign duty of the local government

ch-Westfälisch

  • Local authorities responsible for sewage disposal
  • Municipality can choose how the task is fulfilled

Rheinisc

(organizational arrangement)

  • Different organizational forms reflect certain levels of

g municipalities’ interference

  • Reducing the influence of local authorities is regarded as

g g a first step to open the sector to the market

7 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 8

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Organizational Arrangements

ür Wirtschafts

  • Municipal department (Regiebetrieb) (24% )

hes Institut fü

  • Municipal department (Regiebetrieb) (24% )
  • Semi-autonomous agency (Eigenbetrieb) (40% )
  • P blic la

inco po ation (Anstalt öff Rechts) (16% )

ch-Westfälisch

  • Public law incorporation (Anstalt öff. Rechts) (16% )
  • Inter-municipal agency (Zweck- bzw. Wasserverband)

(9% )

Rheinisc

(9% )

  • Municipal enterprise under private law (Eigengesellschaft

AG / GmbH) (4% ) AG / GmbH) (4% )

  • Operating /Co-operating Enterprise (Betreiber-/

Kooperationsgesellschaft AG / GmbH) (3% ) Kooperationsgesellschaft AG / GmbH) (3% )

  • Others (4% )

8 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 9

sforschung

Survey Description

ür Wirtschafts hes Institut fü

  • Survey among ATV-DVWK members
  • 683 firms randomly drawn stratified by location and size

ch-Westfälisch

  • 683 firms randomly drawn, stratified by location and size
  • 237 completed questionnaires, 161 used for estimation

Rheinisc

  • Majority of questions concerned with perceptions about

drivers and obstacles to innovations

  • Here focus is on questions concerning adaptation of
  • rganizational novelties (already implemented,

i l t ti l d i l t ti t implementation planned, or implementation not considered)

9 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 10

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Organizational Innovations

ür Wirtschafts hes Institut fü

Distribution of dependent variables:

O

ch-Westfälisch

Organizational innovation neither planned nor implemented adaptation planned already adapted Split waste water charges 93 24 44 S l t d f 133 21 7

Rheinisc

Success-related fees 133 21 7 Service and operation directions 50 33 78 Cost and activity accounting 80 30 51 Internal performance indicators 105 24 32 Benchmarking 117 16 28 Management systems 128 20 13 Management systems 128 20 13 Incentive wages 137 13 11

10 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 11

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Explanatory Variables

ür Wirtschafts

Preferred Specification:

hes Institut fü

p

  • Dummies for organizational form
  • Controls for size (population) and

ch-Westfälisch

E l t V i bl M M di Std D M i U it

(p p ) characteristics of disposal area (population density)

Rheinisc

Explanatory Variable Mean Median

  • Std. Dev.

Measuring Unit municipal department 0.2733 0.4470 indicator semi-autonomous agency 0.3602 0.4816 indicator inter-municipal agency 0.2360 0.4260 indicator public law incorporation 0.0621 0.2421 indicator private law 0.0683 0.2531 indicator population 0.1198 0.0185 0.4031 106 people population density 0.0490 0.0210 0.0673 104 people/km2

11 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 12

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The Econometric Model

ür Wirtschafts hes Institut fü

The Modeling Strategy:

  • Innovations are measured by output not inputs

ch-Westfälisch

  • Individual innovations are observed
  • Analysis is interested in innovativeness in general not

Rheinisc

  • Analysis is interested in innovativeness in general, not

single innovations

  • No ex ante measure of innovativeness is constructed
  • No ex ante measure of innovativeness is constructed
  • Multivariate analysis & structural model allow for

identification of effects on the unobserved variable identification of effects on the unobserved variable

“innovativeness”

12 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 13

sforschung

The Structural Model

ür Wirtschafts

1 Propensity X * to implement an innovation is

hes Institut fü

1. Propensity Xli* to implement an innovation is determined by observable firm-specific variables zi and the latent variable innovativeness Yli*:

ch-Westfälisch

li

'

* * 1 1 * 11 10 1 * i i i i

z Y X           

Rheinisc

' '

* * 2 2 * 21 20 2 * i i i i

z Y X             

  • 2. Innovativeness is determined by characteristics zi too:

. '

* 1 * Li i L i L L Li

z Y X        

  • a

e ess s de e ed by a a e s s

i oo

i i i

z Y     '

*

13 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 14

sforschung

The Structural Model

ür Wirtschafts hes Institut fü ch-Westfälisch Rheinisc 14 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 15

sforschung

A Reduced Form Representation

ür Wirtschafts

  • Structural model not operation since Yli* is not

hes Institut fü

Structural model not operation since Yli is not

  • bserved
  • Substituting Yli* leads to a reduced form

ch-Westfälisch

Substituting Yli leads to a reduced form

  • Reduced form can easily be estimated using L ordered

probit models

Rheinisc

probit models

  • Left hand side: 0, 1, 2 , i.e. innovation not

implemented, implementation planned, already p , p p , y implemented

  • Right hand side: zi
  • Problem: structural parameters  matter, not the

reduced form coefficients

15 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 16

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Identification of the Structural Parameters

ür Wirtschafts

Two assumptions necessary to identify :

hes Institut fü

Two assumptions necessary to identify :

1. An explanatory variable cannot systematically influence the propensity to implement innovations in any other way than

ch-Westfälisch

propensity to implement innovations in any other way than through a firms’ innovativeness, i.e.:

1 

L l

Rheinisc

1

 l l

L 

2. Effects of innovativeness needs an innocent normalization, e.g.:

1 1 

L l l

L 

1  l

L

  calculated as average of the reduced form coefficients

16 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 17

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Estimation Results

ür Wirtschafts

Estimated structural model parameters:

hes Institut fü

Estimated structural model parameters:

Explanatory Variable Estimated Coefficient Standard Error semi-autonomous agency 0 2689 0 5545

ch-Westfälisch

semi autonomous agency 0.2689 0.5545 inter-municipal agency 0.2164 0.5636 public law incorporation

  • 0.1255

0.8335

Rheinisc

private law 0.7389 0.8221 population 1.4746* 0.7085 population density 4 2511** 1 2862 population density 4.2511 1.2862

  • Absolute size of estimated coefficients has no natural

Absolute size of estimated coefficients has no natural interpretation

  • Singe and significance matter

17 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 18

sforschung

Estimation Results

ür Wirtschafts hes Institut fü

Main qualitative results:

1. Dummies indicating organizational neither individually

ch-Westfälisch

1. Dummies indicating organizational neither individually nor jointly significant 2 Population (i e size) positive and marginally

Rheinisc

2. Population (i.e. size) positive and - marginally - significant l d d h hl f (h ld 3. Population density positive and highly significant (holds for any specification estimated)

18 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 19

sforschung

Robustness Check

ür Wirtschafts

Conventional Count-Data Analysis (ZI P Model):

hes Institut fü

Explanatory Variable Only implemented

  • Imp. & planned

Est.

  • S. E.

Est.

  • S. E.

semi-autonomous agency 0.179 0.125 0.198 0.115

ch-Westfälisch

g y inter-municipal agency 0.068 0.141 0.132 0.133 public law incorporation 0.059 0.236 0.157 0.285

Rheinisc

private law 0.603* 0.227 0.333 0.176 population 0.152 0.172 0.020 0.188 population density 3 754** 1 404 3 312** 1 274 population density 3.754 1.404 3.312 1.274

  • Results largely confirm earlier findings
  • Organizational arrangements jointly insignificant
  • Population density significant

19 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
  • pu at o

de s ty s g ca t

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SLIDE 20

sforschung

Interpretation of Estimation Results

ür Wirtschafts

1 Estimation results do not support the hypothesis

hes Institut fü

  • 1. Estimation results do not support the hypothesis

that changes in organizational arrangement (in particular a reduced influence of municipal

ch-Westfälisch

p p councils and privatization) will improve the innovativeness of service providers

Rheinisc

  • Results different from similar research in German water

supply sector.

  • Elements of competition and innovation rather

complements than substitutes complements than substitutes.

  • Very low degree of private commitment hamper

identification of privatization effects

20 INFRADAY 2009

  • M. Oelmann & H. Tauchmann

identification of privatization effects.

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SLIDE 21

sforschung

Interpretation of Estimation Results

ür Wirtschafts hes Institut fü

  • 2. Estimation results suggest that lager firms are

more innovative than small ones.

ch-Westfälisch

more innovative than small ones.

  • Result is not fully robust

Rheinisc

  • Restructuring the – very fragmented – sector leading to

larger units appears to be beneficial

  • Process has already started

21 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 22

sforschung

Interpretation of Estimation Results

ür Wirtschafts hes Institut fü

  • 3. Estimation results suggest that firms located in

densely populated area are more innovative than

ch-Westfälisch

densely populated area are more innovative than firms at the periphery

  • Alternative specifications suggest that “population

Rheinisc

  • Alternative specifications suggest that population

density” captures socio-economics rather than geographical effects g g p

  • Integration into innovations enhancing networks and

access to human capital seems to be important for access to human capital seems to be important for innovative activities of firms providing waste water services

22 INFRADAY 2009

  • M. Oelmann & H. Tauchmann
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SLIDE 23

sforschung

Policy Implications

ür Wirtschafts hes Institut fü

  • Competitive elements at least as in the German water

supply sector ought to be considered

ch-Westfälisch

pp y g

  • Restructuring leading to larger units is likely to improve

the sector’s innovativeness

Rheinisc

the sector s innovativeness

  • Investments that generally enhance innovations

( h d ti ) lik l t b b fi i l f th (research, education …) are likely to be beneficial for the waste water sector’s innovativeness

23 INFRADAY 2009

  • M. Oelmann & H. Tauchmann