Abstract
This paper extends the multistage procedure set out by Fried, Schmidt, and Yaisawarng (1999) to examine the importance of environmental factors when assessing the technical efficiency of water agencies. However, following Simar and Wilson’s (2007) critique of multistage efficiency analyses, the paper uses a bootstrapping approach in order to have consistent inference. Data are from a cross-section of municipal water agencies in Ontario, Canada, during 1996. The main findings are that environmental factors explain some of the observed variation in efficiency scores and that water agencies’ relative efficiency scores are changed substantially after controlling for environmental factors. (JEL H42, Q25)
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