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The Public Firm and Strategic Interaction: The Case of Public Waste Water Management

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  • Roelof de Jong
  • Andries Nentjes
  • Doede Wiersma

Abstract

Usually public monopoly firms have the task of providing services while covering costs with the revenue from charges paid by users. From the literature it is known that if users take the charge as given, the zero-profit constraint of the public firm results in an inefficient allocation of resources. In this paper, it is shown that the inefficiency will be completely corrected if the not-for-profit supplier faces a surplus-maximising single purchaser. The model has been applied to analyse the efficiency of public wastewater management, but it also has regulatory implications for other markets that cannot be liberalised.

Suggested Citation

  • Roelof de Jong & Andries Nentjes & Doede Wiersma, 2002. "The Public Firm and Strategic Interaction: The Case of Public Waste Water Management," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(2), pages 221-233, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200206)158:2_221:tpfasi_2.0.tx_2-q
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    References listed on IDEAS

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    1. Newbery, David M., 1997. "Privatisation and liberalisation of network utilities," European Economic Review, Elsevier, vol. 41(3-5), pages 357-383, April.
    2. Boiteux, M., 1971. "On the management of public monopolies subject to budgetary constraints," Journal of Economic Theory, Elsevier, vol. 3(3), pages 219-240, September.
    3. Pethig, Rudiger, 1989. "Efficiency versus self-financing in water quality management," Journal of Public Economics, Elsevier, vol. 38(1), pages 75-93, February.
    4. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, April.
    5. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
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    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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