New PDF release: Introducing Competition into the Piped Water Market: A

By Urs Meister (auth.)

Water shortage isn't solely a priority of the terrible. constructed international locations are more and more dealing with difficulties on the topic of better in line with capita intake and pollutants in order that bettering the potency of the water provide ranks one of the major worldwide demanding situations of the long run. the mandatory advancements aren't just a subject of technical development but in addition of institutional design.

utilizing instruments of recent business economics, Urs Meister examines the results of privatisation and festival within the piped water undefined. contemplating the 2 major ways for festival in an with common monopoly personality, universal carriage (interconnection) and franchise bidding (auctions), he analyses expenses, retail costs and funding. Such research indicates that festival could be a invaluable chance to enhance the potency of water offer.

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Extra info for Introducing Competition into the Piped Water Market: A Theoretical Analysis of Common Carriage and Franchise Bidding

Sample text

It relates marginal cost of investment dK^{I^)/dI^ to their marginal revenues. ' We assume reaction curves to be falling. SOLVING THE MODEL 29 the lower cost of production -{61^(1 ^)/dI^)C^'. Since marginal cost of production is increasing, the firm, which increases production due to liberalisation, will face higher investment incentives, because with higher marginal production costs marginal revenues of investment are higher. The opposite holds for the firm that lowers production. Recall that in equilibrium, the low-cost firm will increase production whereas the output of the high-cost firm decreases.

This argument is reflected in the term (P2'^2fi/^^^)^2>«» which is positive. The other partial effect, (-da2/dI^)q2A, is negative. B knows that A will stay in the foreign market even with a slightly higher access charge, because marginal costs of ^ have fallen. This induces B to get its part from the increased efficiency of A and to increase the access price. Obviously, this has a negative influence on v4's profits. Which partial effect dominates in total cannot be determined generally. The third effect denotes the direct effect and appears in the case with separated networks too.

Of course, welfare will be lower than with marginal cost pricing. However, welfare is higher than under the unregulated regime when the regulator sets the access price below the level of ^'s profit maximising access price charge (a\

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