Water Demand Fluctuations, Non-Transferable Water Rights, and Technical Inefficiency in Japan’s Water Sector

Abstract

The 2011 Tōhoku earthquake triggered an unexpected water demand fluctuation in Japan’s Abukuma river region. Using this context, this study examines whether demand fluctuations result in technical inefficiency in the Japan’s water sector. Technical efficiency is measured using a data envelopment analysis of water suppliers in the region from 2008–2014. Next, a bootstrapped truncated regression model is specified to examine the determinants of technical efficiency. The estimation results reveal that inefficiency arises when water suppliers with water rights face declining demand. A counterfactual scenario, whereby excess water rights are reallocated to increase water suppliers’ efficiency, improves technical efficiency by 7.19%. This result suggests that the government should permit the reallocation of water rights under a trading scheme.