| Title: | Privatizing Water Distribution |
| Number: | 04-03 |
| Author: | Ujjayant Chakravorty, Eithan Hochman, Chieko Umetsu and David Zilberman1 |
| Issue Date: | March 2004 |
| 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.
The distribution of water has public good characteristics. Alternative
institutions with market power in each micro-market are compared with
benchmark
cases – social planning and a business-as-usual regime with
distribution
failure. Empirical results show that privatization need not always be
Pareto-improving. The regime with market failure in distribution may be
preferred to a 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. The structure of
each
micro-market must be examined before choosing one institution over
another.
|
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