Governance Costs of Regulation for Water Supply
Theory and practice of regulation of natural monopoly have extended traditional concerns with allocative efficiency to include the transactions costs associated with setting up and operating regulatory institutions. Originally, with single-product natural monopoly, the objective of regulation was just a matter of allocative efficiency, the idea being to promote the maximisation of net benefit as expressed by the excess of total consumer and producer surplus over production costs. However, the nature of efficiency concerns has become broader, and now involves such considerations as X-efficiency (see Leibenstein (1966)) and transaction costs.
KeywordsTransaction Cost Small Company Rate Case Allocative Efficiency Monopoly Price
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