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Incentive scheme based on investment plan compliance for public water utilities in Peru

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  • Larrauri, Iván M. Lucich

Abstract

Using the budget-based scheme approach developed by Kirby et.al. (1991) and Reichelstein (1992), this paper establishes the optimal policy function in order to control hidden actions from managers of Public Water Utilities (PWU) regarding investments that deviate from the Optimized Business Plan (OBP), with the purpose of inducing managers to reduce deviation from the execution of not programmed investments in the OBP and from programmed investments that were not executed. We find a high percentage of investment (47%) that deviates from its OBP. However between 16% and 35% of executed investment that it deviates from its programmation, can be controlled by the PWU manager with a compensation payment schemes.

Suggested Citation

  • Larrauri, Iván M. Lucich, 2012. "Incentive scheme based on investment plan compliance for public water utilities in Peru," UFZ Discussion Papers 02/2012, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  • Handle: RePEc:zbw:ufzdps:022012
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    References listed on IDEAS

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    1. Osband, Kent & Reichelstein, Stefan, 1985. "Information-eliciting compensation schemes," Journal of Public Economics, Elsevier, vol. 27(1), pages 107-115, June.
    2. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    3. Kirby, Aj & Reichelstein, S & Sen, Pk & Paik, Ty, 1991. "Participation, Slack, And Budget-Based Performance Evaluation," Journal of Accounting Research, Wiley Blackwell, vol. 29(1), pages 109-128.
    4. Álvaro Busto & Alexander Galetovic, 2001. "Regulación por empresa eficiente: ¿quién es realmente usted?," Documentos de Trabajo 106, Centro de Economía Aplicada, Universidad de Chile.
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