The only restriction that production theory imposes on the movements of factors and their prices is the WACM, tested in the previous section.
In particular, total factor productivity is negative, and the WACM test for 1998 is rejected, for most alternative parameter values.
Once these estimates are obtained, one can determine the cost of the production process implied by the WACM, C(|W.
841, the maintained hypothesis of constant returns to scale in deriving equation (8) under the WACM is accepted.
The last step is to empirically examine the fundamental question of whether the cost behavior of individual water utilities in each ownership category is consistent with the WACM explained in Section II.
j~), for producing the same level of output if there is a violation of the WACM.
The values of the efficiency index in excess of 5 percent for each individual water utility are also examined to determine the possible causes of these departures from the cost-minimizing behavior consistent with the WACM.
For publicly owned water utilities, the range of the percentage difference between the observed cost of production and the cost implied by the WACM is 0.