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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.

Suggested Citation

  • Strand, Jon, 2012. "Low-level versus high-level equilibrium in public utility services," Journal of Public Economics, Elsevier, vol. 96(1), pages 163-172.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:163-172
    DOI: 10.1016/j.jpubeco.2011.09.004
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    References listed on IDEAS

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    1. repec:eee:eneeco:v:67:y:2017:i:c:p:375-386 is not listed on IDEAS
    2. repec:eee:enepol:v:114:y:2018:i:c:p:288-300 is not listed on IDEAS
    3. World Bank, 2015. "Toward Gender-Informed Energy Subsidy Reforms," World Bank Other Operational Studies 22100, The World Bank.
    4. Marco Alderighi & Christophe Feder, 2014. "Political competition, power allocation and welfare in unitary and federal systems," Working Paper series 23_14, Rimini Centre for Economic Analysis.
    5. Di Bella, Gabriel & Grigoli, Francesco, 2017. "Power it up: Strengthening the electricity sector to improve efficiency and support economic activity," Energy Economics, Elsevier, vol. 67(C), pages 375-386.
    6. 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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