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Enhancing Efficiency of Water Supply – Product Market Competition versus Trade

Author

Listed:
  • Reto Foellmi

    (Massachusetts Institute of Technology)

  • Urs Meister

    (University of Zurich)

Abstract

This paper analyses and compares potential efficiency gains induced by the introduction of product market competition and cross boarder trade in the piped water market. We argue that due to the specific circumstances in the water sector product market competition, i.e. competition by common carriage is not expected to be very intensive. The connection of networks could alternatively be used for cross boarder trade between neighboured water utilities. We show that competition by common carriage leads to production incentives for the inefficient supplier. This implies that the retail prices tend to be lower than with cross border trade. However, the efficiency effect dominates and resulting welfare is higher in case of trade.

Suggested Citation

  • Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply – Product Market Competition versus Trade," Public Economics 0412012, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0412012
    Note: Type of Document - pdf; pages: 39
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/pe/papers/0412/0412012.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    5. Cowan, Simon, 1997. "Competition in the Water Industry," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 83-92, Spring.
    6. Grout, Paul A., 2001. "Competition law in telecommunications and its implications for common carriage of water," Utilities Policy, Elsevier, vol. 10(3-4), pages 137-149.
    7. James N. Morgan, 1949. "Bilateral Monopoly and the Competitive Output," The Quarterly Journal of Economics, Oxford University Press, vol. 63(3), pages 371-391.
    8. Meinzen-Dick, Ruth Suseela, 1996. "Groundwater markets in Pakistan: participation and productivity," Research reports 105, International Food Policy Research Institute (IFPRI).
    9. 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.
    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 672-678, November.
    11. Hearne, Robert R. & William Easter, K., 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics, Blackwell, vol. 15(3), pages 187-199, January.
    12. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.
    13. 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.
    14. 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.
    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.
    16. Michael Webb & David Ehrhardt, 1998. "Improving Water Services Through Competition," World Bank Other Operational Studies 11511, The World Bank.
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    Cited by:

    1. Urs Meister, 2005. "Do welfare maximising water utilities maximise welfare under common carriage?," Others 0505001, EconWPA.
    2. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.

    More about this item

    Keywords

    Water; Networks; Product-Market Competition; Trade; Bargaining;

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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