(UN)Bundling public-private partnership contracts in the water sector : competition in auctions and economies of scale in operation
AbstractIn public-private partnership transactions in the water sector, one of the alleged concerns is that there is little market competition at the auction stage. This paper casts light on a tradeoff between the competition effect at the auction level and potential economies of scale in service operation. If the authorities design a large-scale public-private partnership water transaction, it is expected to exploit operational scale economies. But the competition effect may have to be sacrificed. The paper shows a risk that the selection of the contract size could be a very restrictive condition that excludes many prospective bidders. Moreover, the paper quantifies the optimal size of public-private partnership contracts in the sector by estimating a cost function. The analysis shows that economies of scale exist but tend to diminish quickly as production increases. When the amount of water sold exceeds about 40 million m3, the statistical significance of economies of scale disappears. And there is no rationale for auctioning the water operation with annual water delivery of more than 400 million m3 under a single contract.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4459.
Date of creation: 01 Jan 2008
Date of revision:
Town Water Supply and Sanitation; Water Supply and Sanitation Governance and Institutions; Water and Industry; Water Conservation; Urban Water Supply and Sanitation;
This paper has been announced in the following NEP Reports:
- NEP-AGR-2008-01-12 (Agricultural Economics)
- NEP-ALL-2008-01-12 (All new papers)
- NEP-COM-2008-01-12 (Industrial Competition)
- NEP-DEV-2008-01-12 (Development)
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- Eiji Satoh, 2012. "Consolidation and Scale Economies in the Japanese Sewerage Industry," Global COE Hi-Stat Discussion Paper Series gd12-240, Institute of Economic Research, Hitotsubashi University.
- Milos Milosavljevic & Sladjana Benkovic, 2009. "Modern Aspects Of Public Private Partnership," Perspectives of Innovation in Economics and Business (PIEB), Prague Development Center, vol. 3(3), pages 25-28.
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"Retornos a escala en agua y saneamiento: estimaciones para América Latina
[Returns to scale in water and sanitation: estimates for Latin Amercia]," MPRA Paper 20324, University Library of Munich, Germany, revised Jan 2010.
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