Chakravorty, Ujjayant () (University of Alberta, Department of Economics) Hochman, Eithan () (Hebrew University of Jerusalem) Umetsu, Chieko () (Research Institute for Humanity and Nature) Zilberman, David () (University of California at Berkeley)
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The distribution of water resources is characterized by increasing returns to scale. Distribution systems link water generation to its end-use. Standard economic analysis overlooks the interaction among these micro-markets - generation, distribution and end-use. We compare water allocation when there is market power in each micro-market. These outcomes are compared with benchmark cases - social planning and a competitive business-as-usual regime. Simulations suggest that institutions with market power in generation and end-use generate significantly higher welfare than the distribution monopoly and the competitive regime. However, if the policy goal is to maximize the size of the grid, a distribution monopoly is preferred.
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Paper provided by University of Alberta, Department of Economics in its series Working Papers with number
2009-8.