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Alternative Institutional Arrangements in Network Utilities: An Incomplete Contracting Approach

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This paper presents a theoretical assessment of the efficiency implications of privatizing natural monopolies which are vertically related to potential competitive industries (network utilities). Based on the incomplete contracts and asymmetric information paradigm, I develop a model that analyzes the relative advantages of different institutional arrangements - alternative ownership and market structures in the industry - in terms of their allocative (static) and productive (dynamic) efficiencies. The main policy conclusion of this paper is that both ownership and the existence of conglomerates in network industries matter. Among other conclusions, this paper provides an economic rationale for mixed economies when the network is public and both vertical separation and full concentration of the industry when the natural monopoly is regulated under private ownership.

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  • Eduardo Saavedra, "undated". "Alternative Institutional Arrangements in Network Utilities: An Incomplete Contracting Approach," ILADES-UAH Working Papers inv116, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv116
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    1. Eduardo Saavedra, "undated". "Opportunistic Behavior and Legal Disputes in the Chilean Electricity Sector," ILADES-UAH Working Papers inv130, Universidad Alberto Hurtado/School of Economics and Business.

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