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Low-level versus high-level equilibrium in public utility services

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  • Strand, Jon

Abstract

Heterogeneity of public utility services is common in developing countries. In a “high-level” equilibrium, the quality of utility services is high, consumer willingness to pay for services is high, the utility is well funded and staff well paid in order to induce high quality of performance. In a “low-level” equilibrium the opposite is the case. Which alternative occurs depends on both the quality of utility management, and public perceptions about service quality. If a utility administration has the potential to offer high-quality service, and the public is aware of this, high-quality equilibrium also requires the public's service payments to be high enough to fund the needed pay incentives for the utility staff. When the public lacks knowledge about the utility administration's quality, the public's initial beliefs about the utility administration's quality will also influence their willingness to pay sufficiently for a high-quality equilibrium to be realized. This paper shows that, with low confidence, only a low-level equilibrium may exist; while with higher initial confidence, a high-level equilibrium becomes possible. “Intermediate” (in between the low- and high-level) outcomes can also occur, in early periods, with “high-level” outcomes later on.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 1 ()
Pages: 163-172

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:163-172

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Public utility services; Low-level equilibrium; Effort incentive schemes; Multiple equilibria; Bayesian Nash equilibrium;

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References

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  1. Strand, Jon & Walker, Ian, 2005. "Water markets and demand in Central American cities," Environment and Development Economics, Cambridge University Press, vol. 10(03), pages 313-335, June.
  2. NAUGES Céline & STRAND Jon, 2006. "The Value of Water Connections in Central American Cities: A Revealed Preference Study," LERNA Working Papers 06.23.216, LERNA, University of Toulouse.
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  7. Pranab Bardhan & Dilip Mookherjee, 2006. "Decentralisation and Accountability in Infrastructure Delivery in Developing Countries," Economic Journal, Royal Economic Society, vol. 116(508), pages 101-127, 01.
  8. Estache, Antonio & Fay, Marianne, 2007. "Current debates on infrastructure policy," Policy Research Working Paper Series 4410, The World Bank.
  9. Antonio Estache & Jean-Jacques Laffont & Xinzhu Zhang, 2006. "Universal Service Obligations in LDCs: The Effect of Uniform Pricing on Infrastructure Access," ULB Institutional Repository 2013/43913, ULB -- Universite Libre de Bruxelles.
  10. Backus, David & Driffill, John, 1985. "Rational Expectations and Policy Credibility Following a Change in Regime," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 211-21, April.
  11. Raghabendra Chattopadhyay & Esther Duflo, 2004. "Women as Policy Makers: Evidence from a Randomized Policy Experiment in India," Econometrica, Econometric Society, vol. 72(5), pages 1409-1443, 09.
  12. Khemani, Stuti, 2010. "Political economy of infrastructure spending in India," Policy Research Working Paper Series 5423, The World Bank.
  13. World Bank, 2010. "Deep Wells and Prudence : Towards Pragmatic Action for Addressing Groundwater Overexploitation in India," World Bank Other Operational Studies 2835, The World Bank.
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Cited by:
  1. Strand, Jon, 2012. "Allocative inefficiencies resulting from subsidies to agricultural electricity use : an illustrative model," Policy Research Working Paper Series 5955, The World Bank.

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