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Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade

  • Reto Foellmi
  • Urs Meister

    ()

    (Institute for Empirical Research in Economics, University of Zurich
    Institute for Strategy and Business Economics, University of Zurich)

This paper analyses welfare gains in the piped water industry when introducing competition or trade between local utilities. The connection of neighbouring networks can be used for both, voluntary cross border trade and product market competition by common carriage. Using a game theoretic model we show that common carriage induces stronger production incentives for inefficient suppliers. This implies that production efficiency but also retail price tend to be lower than with trade. The net effect regarding welfare depends on the efficiency differential. At higher cost differentials welfare is higher under competition ? even in a lower bound benchmark case without regulation.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/25_ISU_full.pdf
File Function: First version, 2004
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0025.

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Length: 32 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:iso:wpaper:0025
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  1. Hearne, Robert R. & Easter, K. William, 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 15(3), January.
  2. Reto Foellmi & Urs Meister, 2004. "Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing," Working Papers 0032, University of Zurich, Institute for Strategy and Business Economics (ISU).
  3. Cowan, Simon, 1997. "Competition in the Water Industry," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 83-92, Spring.
  4. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
  5. Javier Calatrava & Alberto Garrido, 2005. "Modelling water markets under uncertain water supply," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(2), pages 119-142, June.
  6. Calatrava-Requena, Javier & Garrido, Alberto, 2003. "The Effects Of Spot Water Markets On The Economic Risk Derived From Variable Water Supply," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25885, International Association of Agricultural Economists.
  7. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March.
  8. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
  9. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  10. Feigenbaum, Susan & Teeples, Ronald, 1983. "Public versus Private Water Delivery: A Hedonic Cost Approach," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 672-78, November.
  11. Paul A Grout, 2002. "Competition Law in Telecommunications and its Implications for Common Carriage of Water," The Centre for Market and Public Organisation 02/056, Department of Economics, University of Bristol, UK.
  12. Cowan, Simon, 1993. "Regulation of Several Market Failures: The Water Industry in England and Wales," Oxford Review of Economic Policy, Oxford University Press, vol. 9(4), pages 14-23, Winter.
  13. Michael Webb & David Ehrhardt, 1998. "Improving Water Services Through Competition," World Bank Other Operational Studies 11511, The World Bank.
  14. Meinzen-Dick, Ruth Suseela, 1996. "Groundwater markets in Pakistan: participation and productivity," Research reports 105, International Food Policy Research Institute (IFPRI).
  15. Rosegrant, Mark W. & Binswanger, Hans P., 1994. "Markets in tradable water rights: Potential for efficiency gains in developing country water resource allocation," World Development, Elsevier, vol. 22(11), pages 1613-1625, November.
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