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Privatizing Water Distribution

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  • Ujjayant Chakravorty
  • Eithan Hochman
  • Chieko UmetsuAuthor-Name: David Zilberman

Abstract

Billions of dollars will be spent globally to upgrade water infrastructure in the coming years. The standard economic prescription is privatization and the introduction of water markets. A major lesson from the recent privatization debacle in electricity is that prescriptions for reform must include recognition of the technology for generation, distribution and end-use. The distribution of water has public good characteristics. Alternative institutions with market power in each micro-market are compared with benchmark cases - social planning and a business-as-usual regime with distribution failure. Empirical results show that privatization need not always be Pareto-improving. The regime with market failure in distribution may be preferred to a distribution monopoly, while both may be dominated by monopoly power in the input or output markets. However, if the policy goal is to maximize the size of the grid, the distribution monopoly does best. The structure of each micro-market must be examined before choosing one institution over another.

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Bibliographic Info

Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0403.

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Date of creation: Mar 2004
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Handle: RePEc:emo:wp2003:0403

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  1. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
  2. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  3. Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," Working Papers 0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  4. Chakravorty, Ujjayant & Umetsu, Chieko, 2003. "Basinwide water management: a spatial model," Journal of Environmental Economics and Management, Elsevier, vol. 45(1), pages 1-23, January.
  5. Stephen Holland, 2006. "Privatization of Water-Resource Development," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(2), pages 291-315, 06.
  6. Ray, Isha & Williams, Jeffrey, 2002. "Locational asymmetry and the potential for cooperation on a canal," Journal of Development Economics, Elsevier, vol. 67(1), pages 129-155, February.
  7. Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
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