Innovative regulations, incomplete contracts and ownership structure in the water utilities
- 339 Downloads
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.
KeywordsIncomplete contracts Public services Water utilities Privatisation Economics of regulated industries
JEL ClassificationK23 Q58 O18 L51 L95
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.
- Aoki, M. (1986). Horizontal vs. vertical information structure of the firm. The American Economic Review, 76(5), 971–983.Google Scholar
- Blanc, A., & Botton S. (1995). Water services and private sector in developing countries. PPIAF-AFD (Tremolet, S. Chapter 2.1. Private sector participation in Senegal: a successful “home grown” strategy? 131–149). http://www.afd.fr/webdav/shared/PUBLICATIONS/RECHERCHE/Scientifiques/Recherches/02-Recherches-VA.pdf. August 2014.
- Blanc, A., & Ghesquières, C. (2006). Secteur de l’eau au Sénégal: un partenariat équilibré entre acteurs publics et privés pour servir les plus démunis? AFD, 24, 1–29.Google Scholar
- Brocklehurst, C., & Janssens, J. (2004). Innovative contracts, sound relationships: Urban water sector reform in Senegal. Water supply and sanitation sector board discussion paper series. World Bank 1, 51.Google Scholar
- Desrieux, C. (2014). To allot or not to allot Public Services in Europe? An incomplete contract approach, (avec J. de Brux). European Journal of Law and Economics, 37(3), 455–476.Google Scholar
- Dia, M. (2012). Augmentation de l’efficience et affermage de l’eau au Sénégal. http://www.icafrica.org/fileadmin/documents/ICA_sponsored_events/IFC_PPP_Water_Dakar_June2012/Presentations/Session_5/S%205a_Senegal_Dia.pdf. July 2014.
- Fall, M., Marin, Ph., Locussol, A., Verspyck, R. (2009). Reforming urban water utilities in western and central Africa: Experiences with public-private partnerships. World Bank, PPIAF. http://www.ifc.org/wps/wcm/connect/5202b8804ba99b958e16ef1be6561834/WaterPPPvol2.pdf?MOD=AJPERES. August 2014.
- Marin, P. (2009). Public-private partnerships for urban water utilities. World Bank. http://www.oecd.org/env/outreach/44576275.pdf. August, 2014.
- Marin, P., & Ouibiga, H. (2010). Corporatizing a water utility: A successful case using a performance-based service contract for ONEA in Burkina Faso. https://openknowledge.worldbank.org/bitstream/handle/10986/10507/567440BRI0Box31tizing1water1utility.pdf?sequence=1. July 2014.
- Pagano, U., & Rossi, M. A. (2004). Incomplete contracts, intellectual property and institutional complementarities. Working Paper. Italy: University of Siena and Central European University.Google Scholar
- Scott, R. E. (1999). Case for formalism in relational contract. Northwestern University Law Review, 94, 847.Google Scholar
- Seck, A. (2013). Programme d’investissement horizon 2025 et stratégie. 7ème revue annuelle sectorielle conjointe-SONES. http://www.pepam.gouv.sn/docs/PDF_RAC2013/SONES%20RAC%202013.pdf. July 2014.
- Tremolet, S. (2006). Case study on Senegal’s water and sanitation sector economic regulation. A report to the World Bank. Castalia, Tremolet consulting. http://www.ppiaf.org/sites/ppiaf.org/files/publication/Case_Studies_on_water_and_sanitation_sector_economic_regulation.pdf. August 2014.
- Tremolet, S. (2010). Investing in urban water and sanitation. New York: Routledge, Rockefeller Foundation.Google Scholar
- Tremolet, S. (2012). Small-scale finance for water and sanitation (pp. 1–70). Stockholm: EU Water Initiative/SHARE, Finance Working Group.Google Scholar
- Williamson, O. E. (1971). The vertical integration of production: Market failure considerations. The American Economic Review, 61(2), 112–123.Google Scholar
- Williamson, O. (1975). Markets and hierarchies: Analysis and antitrust implications. New York: Free Press.Google Scholar