Production functions for water delivery systems: Analysis and estimation using dual cost function and implicit price specifications

Both policy and technical analysis of water delivery systems have been based on cost functions that are inconsistent with or are incomplete representations of the neoclassical production functions of economics. We present a full‐featured production function model of water delivery which can be estimated from a multiproduct, dual cost function. The model features implicit prices for own‐water inputs and is implemented as a jointly estimated system of input share equations and a translog cost function. Likelihood ratio tests are performed showing that a minimally constrained, full‐featured production function is a necessary specification of the water delivery operations in our sample. This, plus the model's highly efficient and economically correct parameter estimates, confirms the usefulness of a production function approach to modeling the economic activities of water delivery systems.