IDEAS home Printed from https://ideas.repec.org/p/iso/wpaper/0025.html
   My bibliography  Save this paper

Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade

Author

Listed:
  • Reto Foellmi
  • Urs Meister

    (Institute for Empirical Research in Economics, University of Zurich
    Institute for Strategy and Business Economics, University of Zurich)

Abstract

This paper analyses welfare gains in the piped water industry when introducing competition or trade between local utilities. The connection of neighbouring networks can be used for both, voluntary cross border trade and product market competition by common carriage. Using a game theoretic model we show that common carriage induces stronger production incentives for inefficient suppliers. This implies that production efficiency but also retail price tend to be lower than with trade. The net effect regarding welfare depends on the efficiency differential. At higher cost differentials welfare is higher under competition ? even in a lower bound benchmark case without regulation.

Suggested Citation

  • Reto Foellmi & Urs Meister, 2004. "Enhancing Efficiency of Water Supply - Product Market Compoetition versus Trade," Working Papers 0025, University of Zurich, Institute for Strategy and Business Economics (ISU).
    • Handle: RePEc:iso:wpaper:0025
    as

    Download full text from publisher

    File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/25_ISU_full.pdf
    File Function: First version, 2004
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cowan, Simon, 1993. "Regulation of Several Market Failures: The Water Industry in England and Wales," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 9(4), pages 14-23, Winter.
    2. Urs Meister, 2005. "Do welfare maximising water utilities maximise welfare under common carriage?," Others 0505001, University Library of Munich, Germany.
    3. Calatrava-Requena, Javier & Garrido, Alberto, 2003. "The Effects Of Spot Water Markets On The Economic Risk Derived From Variable Water Supply," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25885, International Association of Agricultural Economists.
    4. Fumitoshi Mizutani & Takuya Urakami, 2001. "articles: Identifying network density and scale economies for Japanese water supply organizations," Papers in Regional Science, Springer;Regional Science Association International, vol. 80(2), pages 211-230.
    5. Javier Calatrava & Alberto Garrido, 2005. "Modelling water markets under uncertain water supply," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 32(2), pages 119-142, June.
    6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    7. Antonioli, B. & Filippini, M., 2001. "The use of a variable cost function in the regulation of the Italian water industry," Utilities Policy, Elsevier, vol. 10(3-4), pages 181-187.
    8. Gerhard Tintner, 1939. "The Problem of Bilateral Monopoly: A Note," Journal of Political Economy, University of Chicago Press, vol. 47(2), pages 263-263.
    9. Cowan, Simon, 1997. "Competition in the Water Industry," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 13(1), pages 83-92, Spring.
    10. Christian von Hirschhausen & Astrid Cullmann & Matthias Walter & Michael Zschille, 2009. "Fallende Preise in der Wasserwirtschaft: Hessen auf dem Vormarsch," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 76(10), pages 150-155.
    11. Becker, Nir, 1995. "Value of moving from central planning to a market system: lessons from the Israeli water sector," Agricultural Economics, Blackwell, vol. 12(1), pages 11-21, April.
    12. Grout, Paul A., 2001. "Competition law in telecommunications and its implications for common carriage of water," Utilities Policy, Elsevier, vol. 10(3-4), pages 137-149.
    13. James N. Morgan, 1949. "Bilateral Monopoly and the Competitive Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 63(3), pages 371-391.
    14. Meinzen-Dick, Ruth Suseela, 1996. "Groundwater markets in Pakistan: participation and productivity," Research reports 105, International Food Policy Research Institute (IFPRI).
    15. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
    16. Serge Garcia & Alban Thomas, 2001. "The Structure of Municipal Water Supply Costs: Application to a Panel of French Local Communities," Journal of Productivity Analysis, Springer, vol. 16(1), pages 5-29, July.
    17. Walter, Matthias & Cullmann, Astrid & von Hirschhausen, Christian & Wand, Robert & Zschille, Michael, 2009. "Quo vadis efficiency analysis of water distribution? A comparative literature review," Utilities Policy, Elsevier, vol. 17(3-4), pages 225-232, September.
    18. Hearne, Robert R. & William Easter, K., 1997. "The economic and financial gains from water markets in Chile," Agricultural Economics, Blackwell, vol. 15(3), pages 187-199, January.
    19. John W. Sawkins, 2001. "The development of competition in the English and Welsh water and sewerage industry ," Fiscal Studies, Institute for Fiscal Studies, vol. 22(2), pages 189-215, June.
    20. Saal, David S & Parker, David, 2001. "Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales," Journal of Regulatory Economics, Springer, vol. 20(1), pages 61-90, July.
    21. Klein, Michael, 1996. "Economic regulation of water companies," Policy Research Working Paper Series 1649, The World Bank.
    22. Feigenbaum, Susan & Teeples, Ronald, 1983. "Public versus Private Water Delivery: A Hedonic Cost Approach," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 672-678, November.
    23. Massimo Filippini & Nevenka Hrovatin & Jelena Zorić, 2008. "Cost efficiency of Slovenian water distribution utilities: an application of stochastic frontier methods," Journal of Productivity Analysis, Springer, vol. 29(2), pages 169-182, April.
    24. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.
    25. Garcia, Serge & Moreaux, Michel & Reynaud, Arnaud, 2007. "Measuring economies of vertical integration in network industries: An application to the water sector," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 791-820, August.
    26. Hern, R., 2001. "Competition and access pricing in the UK water industry," Utilities Policy, Elsevier, vol. 10(3-4), pages 117-127.
    27. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March.
    28. Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
    29. Rosegrant, Mark W. & Binswanger, Hans P., 1994. "Markets in tradable water rights: Potential for efficiency gains in developing country water resource allocation," World Development, Elsevier, vol. 22(11), pages 1613-1625, November.
    30. Michael Webb & David Ehrhardt, 1998. "Improving Water Services Through Competition," World Bank Publications - Reports 11511, The World Bank Group.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Urs Meister, 2005. "Do welfare maximising water utilities maximise welfare under common carriage?," Others 0505001, University Library of Munich, Germany.
    2. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.
    3. Caravaggio, Andrea & De Cesare, Luigi & Di Liddo, Andrea, 2024. "Socio-economic determinants of pricing water for domestic use: A comparison of blocks and linear tariffs," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Zschille, 2012. "Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework," Discussion Papers of DIW Berlin 1187, DIW Berlin, German Institute for Economic Research.
    2. Takuya Urakami & David Parker, 2011. "The Effects of Consolidation amongst Japanese Water Utilities," Urban Studies, Urban Studies Journal Limited, vol. 48(13), pages 2805-2825, October.
    3. Michael Zschille, 2015. "Consolidating the water industry: an analysis of the potential gains from horizontal integration in a conditional efficiency framework," Journal of Productivity Analysis, Springer, vol. 44(1), pages 97-114, August.
    4. Walter, Matthias & Cullmann, Astrid & von Hirschhausen, Christian & Wand, Robert & Zschille, Michael, 2009. "Quo vadis efficiency analysis of water distribution? A comparative literature review," Utilities Policy, Elsevier, vol. 17(3-4), pages 225-232, September.
    5. Zschille, Michael, 2012. "Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Fr," CEPR Discussion Papers 8737, C.E.P.R. Discussion Papers.
    6. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.
    7. Abbott, Malcolm & Cohen, Bruce, 2009. "Productivity and efficiency in the water industry," Utilities Policy, Elsevier, vol. 17(3-4), pages 233-244, September.
    8. Ferro, Gustavo & Lentini, Emilio & Mercadier, Augusto & Romero, Carlos A., 2010. "Retornos a escala en agua y saneamiento: estimaciones para América Latina [Returns to scale in water and sanitation: estimates for Latin Amercia]," MPRA Paper 20324, University Library of Munich, Germany, revised Jan 2010.
    9. Augusto Mercadier & Walter Cont & Gustavo Ferro, 2016. "Economies of scale in Peru’s water and sanitation sector," Journal of Productivity Analysis, Springer, vol. 45(2), pages 215-228, April.
    10. Malcolm Abbott & Bruce Cohen, 2010. "Industry Structure Issues in the Water and Wastewater Sectors in Australia," Economic Papers, The Economic Society of Australia, vol. 29(1), pages 48-63, March.
    11. Michael Zschille, 2014. "Nonparametric measures of returns to scale: an application to German water supply," Empirical Economics, Springer, vol. 47(3), pages 1029-1053, November.
    12. Saal David S. & Arocena Pablo & Maziotis Alexandros & Triebs Thomas, 2013. "Scale and Scope Economies and the Efficient Vertical and Horizontal Configuration of the Water Industry: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 12(1), pages 93-129, March.
    13. Miguel A. García-Rubio & Francisco González-Gómez & Jorge Guardiola, 2009. "Performance and ownership in the governance of urban water," FEG Working Paper Series 09/03, Faculty of Economics and Business (University of Granada).
    14. Michael Zschille & Matthias Walter, 2012. "The performance of German water utilities: a (semi)-parametric analysis," Applied Economics, Taylor & Francis Journals, vol. 44(29), pages 3749-3764, October.
    15. Hélène Bouscasse & François Destandau & Serge S. Garcia, 2006. "Analyse économétrique des coûts des services d'eau potable et qualité des prestations offertes aux usagers," Post-Print hal-01072367, HAL.
    16. Carvalho, Pedro & Marques, Rui Cunha & Berg, Sanford, 2012. "A meta-regression analysis of benchmarking studies on water utilities market structure," Utilities Policy, Elsevier, vol. 21(C), pages 40-49.
    17. Andrea Guerrini & Giulia Romano & Bettina Campedelli, 2013. "Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(13), pages 4559-4578, October.
    18. Danelon, André F. & Spolador, Humberto F.S. & Kumbhakar, Subal C., 2021. "Weather and population size effects on water and sewer treatment costs: Evidence from Brazil," Journal of Development Economics, Elsevier, vol. 153(C).
    19. Francesco Prota, 2002. "Water Resources And Water Policies," Working Papers 8_2002, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    20. Graziano Abrate & Fabrizio Erbetta & Giovanni Fraquelli, 2011. "Public utility planning and cost efficiency in a decentralized regulation context: the case of the Italian integrated water service," Journal of Productivity Analysis, Springer, vol. 35(3), pages 227-242, June.

    More about this item

    Keywords

    Water; Networks; Product-Market Competition; Trade; Bargaining;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iso:wpaper:0025. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: IBW IT (email available below). General contact details of provider: https://edirc.repec.org/data/isuzhch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.