This paper outlines a method to determine the tradeoff between economies of size in water treatment and diseconomies of distribution. Cost equations are estimated for several treatment technologies and distribution extensions. Empirical results are used to identify optimal system size where average total costs are minimized. Regardless of treatment, most costs are due to distribution. As water systems expand service territories, only in the most densely populated areas would remaining economies of size in treatment outweigh the diseconomies in distribution.
