Do welfare maximising water utilities maximise welfare under common carriage?

Abstract

Due to the increasing discussion about liberalisation in the piped water industry municipal authorities in several European countries consider modifications of their water utilities’ structure such as legal constitution, business objectives or private participation. The purpose of this paper is to evaluate the extent to which it is socially optimal to compose water utilities as welfare or profit maximising companies when assuming the introduction of competition in the market based on common carriage – as applied in England and Wales. Using a game theoretic model of mixed oligopolies that contains water markets specificities we show that welfare tends to be higher in a regime, where utilities are instructed to maximise profits rather than welfare.Water, Networks, Corporate Governance, Mixed Oligopoly