Cost Efficiency, Urban Patterns and Population Density When Providing Public Infrastructure: A Stochastic Frontier Approach

Inmaculada C. Álvarez, Ángel M. Prieto, José L. Zofío

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13 Citations (Scopus)


Relying on stochastic frontier analysis we propose a methodology to study the technological characteristics and cost efficiency levels related to the provision of public infrastructure for basic utilities. The methodology assumes a cost minimizing behaviour on the part of public officials when planning the construction of local infrastructure, which is represented by way of a flexible translog cost function. Introducing relevant definitions of scale economies, associated with larger numbers of inhabitants and dwellings, as well as economies of density, brought about by reductions in urban dispersion, we analytically determine the optimal population densities for which average cost is minimized. We illustrate our model with the water cycle sector, including water distribution, sewage collection and cleansing of wastewater, and considering data at the municipality level for the Spanish region of Castilla y León. The obtained results indicate potential cost savings in the form of decreasing average costs, as relevant scale and density economies are present, along with large inefficiency levels. Relevant policy guidelines favouring larger and denser urban sizes are drawn, as the observed cost excess is the result of a general suboptimal urban size in terms of population density, and the negative effects of dispersed settlement patterns.

Original languageEnglish
Pages (from-to)1235-1258
Number of pages24
JournalEuropean Planning Studies
Issue number6
Publication statusPublished - Jun 2014

Bibliographical note

Funding Information:
This study was supported by the Spanish Ministerio de Educación y Ciencia within research grant SEJ2006/1482/ECON. We also acknowledge the assistance provided by CYLSTAT, SL, when compiling the LIES database. We are also grateful to the technical departments within different jurisdictional levels (local, provincial and regional governments), that have provided us with all the information on the engineering guidelines for the parametric price database. A previous version of this study has been published as working paper no. 639/2011 of the Working Papers Collection of “La Fundación de Cajas de Ahorros (FUNCAS)”.


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