The welfare consequences of tariff rebalancing in the domestic gas market

The domestic energy markets in the United Kingdom are still in a process of structural change. Earlier this year, limited competition for the supply of household domestic gas was introduced, with full-scale competition expected to develop in the next few years. Competition for the supply of electricity to households is expected to begin in 1998. The introduction of competition in the supply of these energy goods will force tariffs to become more cost-reflective. Until now, maintaining crosssubsidies between consumer groups has not posed any difficulties, given that the suppliers of electricity as well as British Gas have enjoyed monopoly concessions. Profits lost by subsidising one group of consumers have been compensated by higher price-over-cost margins for other groups. Competition is likely to change this. New entrants will try to target market segments where current prices are above supply costs and will have no incentive to supply groups where costs are above prices. To survive, incumbents — who have universal services obligations — will be forced to end internal cross-subsidies.

Broad roads in a thin country - infrastructure concessions in Chile

To increase investment in infrastructure, in the early 1990s Chile's government introduced private capital into the transport infrastructure sector, covering roads and highways, bridges, tunnels, and airports. The chosen mechanism: a concession scheme through which private firms would finance and build a given project and then operate the infrastructure for a set of number of years, recovering their investment by collecting tolls from users. Among the lessons learned from the experience: 1) As much as possible, avoid concessioning roads for which there are convenient alternative freeways nearby. 2) Choose the right variable for awarding a concession. Avoid mechanisms that (by promoting large payments to the state or short-term concession periods) encourage high tolls, and if you choose to award a concession to the firm charging the lowest tolls, place a floor and ceiling on possible bids. The floor is to guarantee the concession's financial viability; the ceiling is to prevent inefficient traffic diversions. Ties at either end should be resolved by a second variable, such as the level of transfers between the state and the firm. 3) Allow downward toll flexibility so that the concessionaire can react to unexpectedly low traffic flows, especially for certain types of vehicles. 4) Pay special attention to the tendering mechanism and to the general incentive structure. There are limits to the pure least-present-value-of-revenue (LPVR) auction, but income guarantees do enhance liquidity. In fact, a minimum-income guarantee through an LPVR auction is an instrument for credit enhancement, not income support. Alternatively, some form of financial innovation should be encouraged to make debt service commitments more flexible. 5) If concessions are tendered by traditional methods and income guarantees will be given, cover only a fraction of the concessionaire's expected income stream, to reduce the state's financial exposure and to improve the incentives to the concessionaire. 6) Make the contracts as complete as possible but allow for later modifications or renegotiations, and include a well-designed dispute resolution mechanism.Banks&Banking Reform,Roads&Highways,Decentralization,International Terrorism&Counterterrorism,Public Sector Economics&Finance,Public Sector Economics&Finance,Roads&Highways,Airports and Air Services,Banks&Banking Reform,Toll Roads

The limits to competition in urban bus services in developing countries

The authors make the case for the return of regulation in the organization of urban bus services in developing countries. During the past three decades urban public transport policy has gone through several phases. The 1980s and 1990s were characterized by liberalization of the sector from public ownership and monopoly provision. The experience of several countries, in particular Chile, indicates that a full liberalization of the sector may not be the welfare-maximizing option. The authors discuss the market failures that justify this claim and present the regulatory options available in this emerging new role of government. Throughout the paper they illustrate ideas with examples from Chile, Colombia, and a few other countries.Labor Policies,Roads&Highways,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Urban Transport,Inter-Urban Roads and Passenger Transport,Roads&Highways,Environmental Economics&Policies,Banks&Banking Reform

ITQ's in Chile: Measuring the Economic Benefits of Reform

In 2001 an individual (operationally transferable) quota system was introduced for all the most important industrial fisheries in Chile. This system was put in place after years of declining stocks and over investment. In this paper we describe this reform and estimate related allocative efficiency benefits for the most important industrial fishery in the country, the southern pelagic fishery. Benefits were estimated using a bioeconomic model and Monte Carlo techniques. This approach allows benefits to be estimated using more realistic counterfactual scenarios than just comparing the fishery before and after the reform. Estimated discounted net benefits reach US$123 to US$366 million in the period 2001 to 2020. Fleet size fell from 148 active boats in 2000 to 65 in 2002 as a direct consequence of the reform. Among the interesting features of the recent Chilean experience is the way the political economy of the reform was facilitated by the prior introduction of de facto individual quotas within the framework of fishery research activities. When the authorities closed the southern pelagic fishery because of biological problems between 1997 and 2000, they organized ‘experimental’ fishing expeditions in which participant boats were given the right to fish a certain amount of resources per expedition. This pseudo quota system allowed fishermen to experience directly the benefits of individual quotas and that was instrumental to the political agreement leading to the reform. This successful gradual approach may be of interest to other countries planning to introduce individual quotas. Finally, it is important to note that the Chilean southern industrial pelagic fishery has average catches of over 1.4 million tons a year, making it one of the largest fisheries in the world to be regulated by individual quotas.Bioeconomic model, pelagic fisheries, individual transferable quotas

Information and modeling issues in designing water and sanitation subsidy schemes

In designing a rational scheme for subsidizing water services, it is important to support the choice of design parameters with empirical analysis that stimulates the impact of subsidy options on the target population. Otherwise, there is little guarantee that the subsidy program will meet its objectives. But such analysis is informationally demanding. Ideally, researchers should have access to a single, consistent data set containing household-level information on consumption, willingness to pay, and a range of socioeconomic characteristics. Such a comprehensive data set will rarely exist. The authors suggest overcoming this data deficiency by collating, and imaginatevily manipulating different sources of data to generate estimates of the missing variables. The most valuable sources of information, they explain, are likely to be the following: 1) Customer databases of the water company, which provide robust information on the measured consumption of formal customers, but little information on unmeasured consumption, informal customers, willingness to pay, or socioeconomic variables. 2) General socioeconomic household surveys, which are an excellent source of socioeconomic information, but tend to record water expenditure rather than physical consumption. 3) Willingness-to-pay surveys, which are generally tailored to a specific project, are very flexible, and may be the only source of willingness-to-pay data. However, they are expensive to undertake, and the information collected is based on hypothetical rather than real behavior. Where such surveys are unavailable, international benchmark values on willingness to pay may be used. Combining data sets requires some effort and creativity, and creates difficulties of its own. But once a suitable data set has been constructed, a simulation model can be created using simple spreadsheet software. The model used to design Panama's water subsidy proposal addressed these questions: a) What are the targeting properties of different eligibility criteria for the subsidy? b) How large should the subsidy be? c) How much will the subsidy scheme cost, including administrative costs? Armed with the above information, policymakers should be in a position to design a subsidy program that reaches the intended beneficiaries, provides them with the level of financial support that is strictly necessary, meets the overall budget restrictions, and does not waste an excessive amount of funding on administrative costs.Water Conservation,Environmental Economics&Policies,Health Economics&Finance,Economic Theory&Research,Decentralization,Water Supply and Sanitation Governance and Institutions,Economic Theory&Research,Environmental Economics&Policies,Town Water Supply and Sanitation,Health Economics&Finance

Utility privatization and the needs of the poor in Latin America - Have we learned enough to get it right?

Efforts to reform utilities can affect poor households in varied, often complex, ways, but it is by no means certain that such reform will hurt vulnerable households. Many myths have been perpetuated in discussions of utility reform - and in many cases poor households have benefited from reform. What is amazing is the extent to which governments, and their advisors - sometimes including multilateral organizations - fail to measure, anticipate, and monitor how the privatization of utilities actually affects the poor. Many questions must still be answered before good general guidelines can be drawn, but the authors offer many suggestions about how social, regulatory, and privatization policy, can increase the benefits of utility reform for poor households. The good news is that many measures can be taken to improve the chances that poor households will benefit from reform. Chief among these is promoting competition, where possible. Essentially what is needed is political commitment to doing the right thing. If policy is weak before privatization, it is going to be weak after privatization as well. Privatization is no substitute for responsible policy on redistribution.Environmental Economics&Policies,Trade Finance and Investment,Municipal Financial Management,Decentralization,Banks&Banking Reform,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Town Water Supply and Sanitation,Municipal Financial Management

Good Regulatory Lags for Price Cap and Rolling Cap contracts

Price caps are a popular form of monopoly price regulation. One of its disadvantages is the perverse incentives that regulated firms might have to scamp on cost reducing effort during the last years before a price review. In order to avoid this problem a “rolling cap†contract was introduced in the United Kingdom that overcomes this last problem. In spite of their popularity, there is scant research on the optimal regulatory lag (number of years between price reviews) of a price cap or rolling cap contract. In practice, around the world most price cap or rolling cap contracts have a lag of 4 to 5 years, but this is not based on any optimality consideration. As is well known, the regulatory lag determines the power of an incentive contract and thus the incentives to undertake cost reducing effort. Schmalensee (1989) studied the optimal power of regulatory contracts in a static model with uncertainty and asymmetric information. She finds that medium powered contracts are generally superior to the polar cases of high or low powered contracts. In this paper, we extend Schmalensee (1989) model used to study the optimal power of regulatory contracts to a dynamic framework. We use numerical simulation to study the optimal regulatory lag for different combinations of demand and cost parameters under a particular linear quadratic structure. We find that in general a 2 year lag is optimal under both a price cap and rolling cap contracts and that a benevolent regulator prefers the rolling cap over the price cap contract in almost all the casesPrice Cap, Rolling Cap, Regulatory Lag, Dynamic Programming

Designing direct subsidies for water and sanitation services - Panama : a case study

As an alternative to traditional subsidy schemes in utility sectors, direct subsidy programs have several advantages: they are transparent, they are explicit, and they minimize distortions of the behavior of both the utility, and the customers. At the same time, defining practical eligibility criteria for direct subsidy schemes is difficult, and identifying eligible households may entail substantial administrative costs. The authors, using a case study from Panama, discuss some of the issues associated with the design of direct subsidy systems for water services. The conclude that: 1) There is a need to assess - rather than assume - the need for a subsidy. A key test of affordability, and thus of the need for a subsidy, is to compare the cost of the service, with some measure of household willingness to pay. 2) The initial assessment must consider the affordability of connection costs as well as the affordability of the service itself. Connection costs may be prohibitive for poor households with no credit, suggesting a need to focus subsidies on providing access, rather than ongoing water consumption. 3) A key issue in designing a direct subsidy scheme is its targeting properties. Poverty is a complex phenomenon, and difficult to measure. Eligibility must therefore be based on easily measurable proxy variables, and good proxies are hard to find. In choosing eligibility criteria for a subsidy, it is essential to verify what proportion of the target group fails to meet the criteria (errors of exclusion) and what proportion of non-target groups is inadvertently eligible for the benefits (errors of inclusion). 4) administrative costs are roughly the same no matter what the level of individual subsidies, so a scheme that pays beneficiaries very little, will tend not to be cost-effective. It is important to determine what proportion of total program costs will be absorbed by administrative expenses. 5) Subsidies should not cover the full cost of the service, and should be contingent on beneficiaries paying their share of the bill. Subsidiesfor consumption above a minimum subsistence level, should be avoided. Subsidies should be provided long enough before eligibility is reassessed to avoid"poverty trap"problems. 6) The utility or concessionaire can be helpful in identifying eligible candidates, because of its superior information on the payment histories of customers. It will also have an incentive to do so, since it has an interest in improving poor payment records. Thought should therefore be given at the design stage to the role of the service provider in the implementation of the subsidy scheme. 7) The administrative agency's responsibilities, the sources of funding, and the general principles guiding the subsidy system should have a clear legal basis, backed by regulations governing administrative procedures. 8) To reduce administrative costs, and avoid duplication of effort, it would be desirable for a single set of institutional arrangements to be used to determine eligibility for all welfare, and subsidy programs in a given jurisdiction, whether sub-national, or national.Sanitation and Sewerage,Environmental Economics&Policies,Health Economics&Finance,Public Health Promotion,Economic Theory&Research,Town Water Supply and Sanitation,Environmental Economics&Policies,Health Economics&Finance,Poverty Assessment,Water Supply and Sanitation Governance and Institutions

A New Look at the Ergon Argument in the Nicomachean Ethics

It is commonly assumed that the ergon argument consists in an inference which starts from the powers specific or peculiar to man and arrives at a definition of the human good. This would commit Aristotle to some form of naturalism which is either fallacious or at least not available to us because we cannot share his views about human nature. The purpose of the present paper is to show that this interpretation is unsatisfactory. Aristotle\u27s argument is based on a general principle which may be reformulated as follows: For any x, if x has an ergon y_, then x will be a good x, if and only if x produces good instances of y.rr The prior identification of the human ergon is then required in order to know what to evaluate when passing judgement on whether a human being is a good human being or not. The specification of the ergon must be achieved in an evaluatively neutral way since the ergon by itself does not provide any standard. I argue that this is conveyed by the expression energeia kai praxeis meta logou. Specifically human are all actions, right or wrong, which may be so precisely because they are accompanied by a logos. This in turn allows us to understand another troublesome expression Aristotle uses to refer to the characteristic activity of human beings: energeia kata logon e me aneu logou, activity according to reason or not without reason. I argue that it is wrong to take the first disjunct as referring to the part of the soul which has reason in itself and the second one to the part of the soul which obeys reason (Irwin). The disjunction stands for positive and negative evaluation of human activity, respectively. To act well in the moral, practical and theoretical domain amounts to acting according to the logos, i.e. according to the corresponding virtues. Failure in the moral, practical and theoretical domain, on the other hand, is not totally irrational : the coward throws away his shield to preserve his life, a fool deliberates well towards a bad end, and a mistake in theoretical thought implies entertaining a logos which happens to be false. No inference from the ergon to the good takes place. On the contrary, the normative weight in Aristotle\u27s ethics is carried by his analyses of the virtues. They provide the standards to judge good and bad performances of the human ergon. I finally argue that the conclusion of the ergon argument does not rest on metaphysical or psychological premises (although they are not inconsistent, of course, with the doctrine of potentiality and actuality, etc. in the Metaphysics nor with anything held in the De Anima). Accordingly, I fail to see here an attempt to ground a universal answer to the question of how we should live in a theory of human nature

Low and high frequency approximations to eigenvibrations of string with double contrasts

We study eigenvibrations for inhomogeneous string consisting of two parts with strongly contrasting stiffness and mass density. In this work we treat a critical case for the high frequency approximations, namely the case when the order of mass density inhomogeneity is the same as the order of stiffness inhomogeneity, with heavier part being softer. The limit problem for high frequency approximations depends nonlinearly on the spectral parameter. The quantization of the spectral semiaxies is applied in order to get a close approximations of eigenvalues as well as eigenfunctions for the prime problem under perturbation.Comment: 13 pages, 6 plots; submitted for publication; typos added