B.E. Journal of Economic Analysis & Policy Vol. 18, No. 2, 2018
26 Pages Posted: 24 Jan 2014 Last revised: 6 May 2018
Date Written: January 22, 2018
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 the 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 residual control rights. Public-private partnerships support higher prices than marginal costs due to rent sharing, with its upper price frontier decreasing in private residual control rights.
Keywords: Natural Monopolies, Operational Efficiency, Public-Private Partnerships, Organization Structure, Regulation
JEL Classification: L22, L32, L43, L51
Suggested Citation: Suggested Citation