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European Journal of Law and Economics

, Volume 42, Issue 3, pp 445–469 | Cite as

Innovative regulations, incomplete contracts and ownership structure in the water utilities

  • Michel NakhlaEmail author
Article

Abstract

Using an incomplete contract framework, we analyse new forms of regulation and private participation in public services. This paper explains contractual efficiency in the absence of financially guaranteed investments in public private partnerships. The example of a number of African countries underlines how a series of national, normative law reforms can give rise to innovations in approaches to regulation. This new hybrid form of regulation, inspired by a French regulation approach combining commission regulation and franchise bidding, could be more effective than previous approaches to regulation, in the sense of being more stable and more closely aligned with stakeholder expectations. This approach to regulation would appear to be more efficient economically, while integrating the objectives of solidarity tariffs and social water access connections. Based on these analyses, our results show (1) the impact on the robustness of new lease contracts on financing constraints, and (2) the advantages of Asset Owner Companies that reconcile explicit commitments and special purposes. We demonstrate that this achieves optimum efficiency by encouraging parties to determine jointly the optimal level of costs and investment. In addition, the mechanism fosters discussion about the possibility of institutionalizing Asset Owner Companies by predetermining the distribution of risk in lease contracts.

Keywords

Incomplete contracts Public services Water utilities Privatisation Economics of regulated industries 

JEL Classification

K23 Q58 O18 L51 L95 

Notes

Acknowledgments

I wish to thank an anonymous referee and the editors for their valuable comments and seminar participants at the 2014 IAPW Conference at Mines ParisTech in Paris.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.CGS-MINES ParisTech UMR I3 CNRS 9217ParisFrance

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