Water Distribution and Market Power

37 Pages Posted: 2 Jun 2005

See all articles by Ujjayant Chakravorty

Ujjayant Chakravorty

Tufts University

Eithan Hochman

Hebrew University of Jerusalem - Department of Agricultural Economics

Chieko Umetsu

Research Institute for Humanity and Nature (RIHN)

David Zilberman

University of California, Berkeley - Department of Agricultural & Resource Economics

Abstract

Billions of dollars will be spent globally to upgrade water infrastructure in the coming years. The standard economic prescription is privatization and the introduction of water markets. A major lesson from the recent privatization debacle in electricity is that prescriptions for reform must include recognition of the technology for generation, distribution, and end-use. We apply this approach for water by comparing alternative institutions that have market power in each of these micro-markets with benchmark cases - social planning and a business-as-usual regime. An illustration shows that the business-as-usual regime with market failure may be preferred to a water distribution monopoly, while both may be dominated by monopoly power in the input or output markets. However, if the policy goal is to maximize the size of the grid, the distribution monopoly does best.

Keywords: Infrastructure, Market Power, Privatization, Public Goods, Spatial Models

JEL Classification: H41, Q25, Q28

Suggested Citation

Chakravorty, Ujjayant and Hochman, Eithan and Umetsu, Chieko and Zilberman, David, Water Distribution and Market Power. Available at SSRN: https://ssrn.com/abstract=734427 or http://dx.doi.org/10.2139/ssrn.734427

Ujjayant Chakravorty (Contact Author)

Tufts University ( email )

Medford, MA 02155
United States

Eithan Hochman

Hebrew University of Jerusalem - Department of Agricultural Economics ( email )

P.O. Box 12
Rehovot, 76100
Israel

Chieko Umetsu

Research Institute for Humanity and Nature (RIHN) ( email )

Motoyama Kamigamo 457-4
Kita-ku
Kyoto 603-8047
Japan

David Zilberman

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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