The effect of private investment on landlord port authorities’ cost efficiency: The Spanish case

• First empirical study on private investment and cost efficiency in Spanish ports authorities. • Private investment reduces port authority cost inefficiency at low-to-medium levels. • Efficiency gains from private capital have weakened since the 2010 port reform. • Traffic concentration improves efficiency but lowers private investment effectiveness. • Results show diminishing returns to private investment in landlord port systems This article examines the impact of private investments in port facilities and equipment on the cost efficiency of Spanish port authorities operating under the landlord model. Using panel data from 26 Spanish port authorities between 2001 and 2018, we estimate a short-run variable cost frontier based on Wang’s (2002) normal-truncated normal stochastic frontier model. This method allows the cost inefficiency component to depend on exogenous covariates, including private investment, traffic concentration, and port reforms. Our findings indicate that higher private investment and traffic concentration are associated with lower cost inefficiency. However, the efficiency gains from private investment have diminished since the enactment of Law 33/2010, with diminishing marginal returns at higher investment levels.