26 Pages Posted: 24 Jan 2014 Last revised: 29 Nov 2016
Date Written: November 22, 2016
This paper presents comparative statics of organizational modes of natural monopoly in public utilities with a focus on co-ownership and co-governance. Private monopoly lowers output and increases price to maximize profit; public monopoly incurs higher costs due to the lack of know-how; and a regulated monopoly results in regulation costs to overcome informational asymmetries. A public-private partnership arises as an efficient organization mode when it enables the internalization of private know-how and saves regulation costs due to correspondingly sufficient private and public ownership and control. Public-private monopoly supports higher prices than marginal costs due to rent sharing, with its upper price frontier decreasing in private ownership.
Keywords: Natural Monopolies, Operational Efficiency, Public-Private Partnerships, Organization Structure, Regulation
JEL Classification: L22, L32, L43, L51
Suggested Citation: Suggested Citation