Evaluating investment strategies for distribution networks based on yardstick competition and DEA

This article puts forward the notion of socio-technical resistance with an application to the regulation through performance indicators in the water sector. Governance failures are mainly explained...

Assessing socio-technical resistance to public policy instruments: Insights from water performance indicators in the Grenoble area (France):

Many local governments allow competition between public and private rms for provision of local public services in order to reduce procurement cost. Competition is usually introduced through competitive tendering for concession contracts. We show that in a symmetric competition between public and private rms with learning-by-doing, private rm’s ability to transfer learning among concessions may reduce consumer’s welfare. The model provides testable implications which are consistent with the empirical evidence: little competition for concessions, retail prices higher under private operation than under public one, and subsidies and retail prices to service providers increased over time. In addition, consumers’ gains from switching to private ownership are higher in industries where private rms have low-ability to transfer learning among dierent concessions.

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Competition for Local Public Services with Learning-by-doing and Transferability

Local monopolists that are regulated by yardstick competition frequently merge with their peers. However, economic theory provides little guidance for merger analysis. In contrast, the theoretical model in this article shows that there can be room for strategic firm behaviour even in a setting where firms are many and collusion is not sustainable. Specifically, the article derives conditions under which firms propose welfare-decreasing mergers to avoid competition with efficient peers and establishes when peer effects discourage firms from implementing socially desirable mergers. Efficient peers flock together whereas inefficient firms remain independent, unless peer effects are counteracted by efficiency effects.

When Efficient Firms Flock Together: Merger Incentives Under Yardstick Competition

This article examines the phenomenon of local resistance to regulation by instruments in the water sector. Governance failures are mainly explained by concentrating on governance design, considering regulation as a set of control mechanisms. We propose an alternative perspective by putting the emphasis on resistance phenomena within services. This is motivated by the observation of misuse of performance indicators by local actors in urban water systems in Europe. We assume that resistances have significant impact on regulation process and efficiency. Therefore, opening the black box of resistances, we show that they are frequent, impactful and not only the consequence of opportunism. These results underline a crucial limitation of public policies and regulations that are based on New public management or classical economics of regulation.

Assessing Socio-Technical Resistances to Public Policy Instruments: Insights from Water Performance Indicators in the Grenoble Area (France)

Collusion seems to be a pervasive problem when regional monopoly rights are auctioned to private firms. This leads us to study whether firms may collude if the regulator uses yardstick competition to simulate competitive forces, and how collusion is affected when both schemes are used. Using an infinitely repeated game framework, we find that collusion is sustainable when firms are sufficiently patient under yardstick competition. An additional franchise bidding mechanism can even help firms sustain collusion when they are impatient. When temporary monopoly rights are assigned for sufficiently long periods of time, collusion may not be sustainable even when firms are patient.

Yardstick Competition, Franchise Bidding and Firms’ Incentives to Collude

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Yardstick Competition, Franchise Bidding and Firms’ Incentives to Collude