Consolidation and Scale Economies in
the Japanese Sewerage Industry

Eiji Satoh

September 2012


This study empirically examines cost reductions in the Japanese sew- erage industry through mergers by modeling the costs of sewage disposal. The cost model is specified in a translog form, and treats capital as a quasi-fixed input. Employing the parameters estimated by the model, the long-run cost function is derived, which indicates that most sewerage operators should be merged to attain scale advantages. Furthermore, while the cost reductions through actual sewerage mergers are estimated to be 37.9 billion yen, a counterfactual simulation shows that a more far-reaching consolidation could achieve cost savings through scale advantages amounting to 190 billion yen.

Full text

PDF Download (PDF: 426KB)