logo-eui RSCAS

In this page you can find a selection of publications by the WaterReg research team (run by FSR Water and Economics of Public Private Partnerships Chair).

2016

Eshien Chong, Stéphane Saussier and Brian S. Silverman

Water Under the Bridge: Determinants of Franchise Renewal in Water Provision

Williamson’s 1976 study of natural-monopoly franchise bidding launched extensive debate concerning the degree to which transaction-cost problems afflict government franchising. We propose that municipalities vary in ability to discipline franchisees, and that this heterogeneous ability affects franchise renewal patterns and the quasi-rents that franchisees extract. We study provision of municipal water services in France, a setting characterized by both direct public provision and franchised private providers. We find that small municipalities pay a significant price premium for franchisee-provided water when compared with publicly provided water; in contrast, large municipalities do not pay a premium on average. Further, large municipalities are less likely to renew an incumbent franchisee that charges an “excessive” price, while small municipalities’ renewal patterns are not influenced by franchisees’ excessive pricing. We interpret the results as evidence that although large municipalities can discipline franchisees and thus prevent extraction of quasi-rents, small municipalities are less able to do so due to weaker outside options. (JEL: H0, H7, K00, L33)

2015

Stéphane Saussier and Jean Tirole

Strengthening the efficiency of public procurement / Renforcer l’efficacité de la commande publique By means of a thorough economic analysis, the authors identify ways aimed at enhancing the efficiency of public procurement in France. An opportunity which must be seized in order to comply with the current regulatory changes at the European level. Considering that the aim of public procurement is above all to meet the need of best performance in terms of costs and services, the authors make recommendations around three main axes: transparency, competition and competences.

2014

Maria Salvetti and Guillem Canneva

Water sector regulation in France: a complex multi-model and multi-level regulatory framework

Regulation can be described as the definition and implementation of rules setting the service general framework (service scope, technical characteristics, service provision conditions), the stakeholders roles and missions, and how the various stakeholders should interact with one another. Regulation also specifies how the cost of the service is to be financed.

While regulation always pursues the same objective, there are several regulatory models deriving from different legal traditions and taking into account national institutional contexts. Among the different European regulatory models in force in the water sector, it is striking to notice that three different regulatory models apply to the French situation. This partly explains the complexity, fragmentation and specificities of the regulatory framework of the French water sector. In such an institutional context, the French regulation framework is a mix of several regulation models. Self-regulation applies to water & sanitation services managed by public operators. Contractual regulation applies to services managed by private operators and soft sunshine regulation applies to all services across the board.

Building upon the OECD analytical grids, the French regulation framework was assessed and described. As a result, it appears that the French regulatory model is a fragmented and complex multi-model and multi-level framework involving stakeholders at national and local levels, each of them fulfilling specific regulation functions and powers. The historic and institutional construction of the French water sector regulation resulted in a highly fragmented framework which induces complex coordination and governance challenges in order to ensure qualitative and efficient regulation and to avoid overlapping. As a result, efforts to simplify the overall regulatory framework may be required for better regulation, efficiency and accountability of water and wastewater utilities.

Franco Becchis, Elisa Vanin and Daniele Russolillo

Knowing the FIELD for water service regulation at local level: Actors, information, incentives

The design of institutional mechanisms and individual incentive schemes is a crucial task to regulate and manage municipal services, included water and sanitation services: at local level relations are so intertwined that it becomes difficult to enforce the hardest part of regulation (franchising, investments, tariffs and prices, rent control, punishment). Indeed, when designing policies and investing in public services and infrastructures, an important issue to consider is the tangled web of complex, difficult and asymmetric relationships among actors. The nature of these actors (players), their information endowment and the information flow amongst them, the incentives that drive their choices, the types of relationships established, are all features that influence the outcome of policies and projects, their success or failure. This is why a preliminary field analysis appears to be necessary before drawing any new policy or to design any new mechanism.

In the first part the paper intends to present FIELD (Framework of Incentives to Empower Local Decision-makers), a multidisciplinary methodology for the analysis of local actors, incentives and information endowment that surround and lie behind the success or the failure of local services, infrastructures and projects, defining the playing field where such activities and projects are implemented. The methodology, which is under development and refinement within the network of the Turin School of Local Regulation, draws mainly on political economy, game theory, social network analysis, passing through sociology, social physics and anthropology. It aims to narrow the gap between the outcomes of academic research and strategic decisions making process local public service governance and regulation.

In the second part, the paper presents the preliminary results of the application of this methodology (through an ad-hoc matrix for data collection) to some selected case studies in the field of municipal water and sanitation services. Three case studies are presented: Sofia in Bulgaria, Belgrade in Serbia and Bangalore in India. The number of Countries analyzed and their limited representativeness in terms of geographical distribution do not allow to provide a relevant comparative analysis at this stage: nevertheless the first results suggest fruitful patterns of research that can enrich the current debate on local regulation. In particular, the methodology can be a useful instrument for better decisions on water sustainability issues.

Maria Salvetti

The network efficiency rate: a key performance indicator for water services asset management?

This study analyses if corporatization of public enterprises reduces political interference. Similar to privatization, corporatization shifts decision rights from politicians to managers, but ownership remains public. The paper tests this hypothesis using a sample of the largest Austrian water providers from 1992 to 2006, comparing in-house provision and corporatized firms.

Michael Klien

Corporatization and the behavior of public firms: How shifting control rights affects political interference in water prices

In France, good governance of public water and sanitation services revolves around the definition and monitoring of performance indicators designed as steering tools and targeting results. Among the 29 statutory performance indicators, the network efficiency rate plays a key role in water services asset management. Indeed if water services fail to comply with a specific efficiency rate by 2015, they may face a 100% increase in the intake tax paid to the French water agencies. Using data from the French national observatory on water services, the actual situation of French water services with regard to the leakage regulation was assessed. Three different groups of water services were identified and described using their generic characteristics. The overall quality of their asset management is analysed using the asset knowledge and management index, the network renewal rate and the water price. Several conclusions were drawn. Firstly, the use of the efficiency rate as a tool to assess the overall asset management quality of services seems to be relevant as it properly reflects the service knowledge and efforts to maintain and manage its water infrastructure. Moreover, services not complying with any regulatory threshold show the poorest level of asset knowledge and management index in the whole working sample. On the contrary, water services complying with the 85% regulatory efficiency rate have the highest level of asset knowledge and management index and the highest network renewal rate in the whole working sample. Lastly, the two groups of services complying with the French leakage regulation show a higher water price than the group failing to match the regulation. Implementing an asset management policy is costly as it induces higher maintenance and investments costs which increase the price of water. On the contrary, services not complying with the regulation show cheaper water prices which reflect little efforts to know and manage their infrastructure.

2013

Aude Le Lannier and Simon Porcher

Efficiency in the public and private French water utilities: Prospects for benchmarking

This paper uses a Data Envelopment Analysis (DEA) and a Stochastic Frontier Analysis (SFA) to assess the relative technical efficiency of 177 decision making units in the water supply sector in France in 2009. Water utilities can be directly managed by the local authorities or contracted out and then managed by a private operator. The use of a three-stage model mixing DEA and SFA enables us to dissociate managerial inefficiencies from the structural inefficiencies and statistical noise. Our results show that private managers face more difficult environments. However, after having taken into account the environmental variables, we find that private management remains on average slightly less efficient than public management. An explanation to this performance gap can be different resource management.

Marian A. Garcia Valinas, Francisco Gonzalez Gomez, Nicolas Melissas, and Javier Suarez Pandiello

Auctioning Tap Water

Water services management has become a key issue as far as urban water supply is considered a service of general interest in the European Union (EU, 2001). In this context, public-private partnerships (PPP) have emerged as a usual way of local water services provision. This paper contributes to analyze the effects and consequences of PPP, both from a theoretical and empirical point of view. First of all, we develop a theoretical framework to show the effects of water services contracting-out on water prices. Second, we test the model using a sample of Spanish municipalities recently privatized. Findings support that, in a context of limited resources, local governments are using public-private partnerships in order to get additional fundings to reduce their indebtness levels. Moreover, the fact of setting a high reservation price as a way to guarantee a minimum amount of resources has been consequences in terms of water price increases after water services privatization.

2012

Simon Porcher

Efficiency and equity in two-part tariffs: the case of residential water rates

As first noticed by Coase (1946), a standard result in utility regulation is that efficiency requires two-part tariffs with marginal prices set to marginal costs and fixed fees equal to each customer’s share of fixed costs. Residential water customers in France face marginal prices for water that average about 8% more than marginal costs. Rebalancing rates from current tariffs to Coasian tariffs results in lower bills for consumers on average but does create strong distributional consequences. Under price elasticity estimates that are consistent with previous results in the literature, efficiency costs represent around 8 million euros of welfare losses for 2008. Even though the impact is fairly small, efficiency gains from reformed tariffs could be used to fund water assistance programs focused on financially stressed households.

Eshien Chong, Stéphane Saussier and Brian S. Silverman

Water under the bridge: city size, bargaining power, prices and franchise renewals in the provision of water

Since Williamson’s 1976 study of franchise bidding for natural monopolies, there has been extensive debate concerning the degree to which transaction-cost problems actually afflict government franchising in practice. We contribute to this debate by proposing that municipalities vary in their ability to discipline franchisees, and that this heterogeneous ability affects franchise renewal patterns and the quasi-rents that franchisees can extract. We study the provision of municipal water services in France, a setting that is characterized by a mix of direct public provision and franchising of private providers. We find that municipalities with fewer than 10,000 residents pay a significant price premium for water provided by private franchisees as compared to publicly provided water, ceteris paribus; in contrast, larger municipalities do not pay a premium. We also find that larger municipalities are significantly less likely to renew an incumbent franchisee that charges an “excessive” price for water, while small municipalities’ renewal patterns are not influenced by franchisees’ excessive pricing. We interpret the results as evidence that although large municipalities are able to discipline franchisees and thus prevent extraction of quasi-rents, small municipalities are less able to do so.

Michael Klien

The political side of public utilities: how opportunistic behavior and yardstick competition shape water prices in Austria

This paper studies the effect of politics on water prices in Austria. When public utilities are under political control, price setting may be affected by political incentives. Besides classical theories like the political budget cycle, more current research stresses the role of spatial interactions between jurisdictions (yardstick competition). The paper tests for both local political competition and yardstick competition using a spatial lag model. The results suggest that water prices are lower when political competition is strong and before elections. At the same time the magnitude of the political budget cycle appears to depend upon neighboring jurisdictions, thus confirming yardstick competition as an indirect determinant of water prices.