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Privatizing Waterworks: Learning from the French Experience *

Privatizing Waterworks: Learning from the French Experience * In this pair of articles, the first of which was published almost 25 years ago, two distinguished economists make and then revisit the case for privatizing the water supply. While agreeing with the general assessment that waterworks are “natural monopolies,” the authors show that privatization of such enterprises need not lead to the standard monopoly outcomes of above‐competitive prices, reduced output, or inferior service. As evidence, the authors cite the French experiment with water privatization that began in 1782 with the Perrier brothers' 15‐year contract to provide water for Parisians. Today, an estimated 80% of the French water supply is managed by private firms. And, as the French experience demonstrates, the benefits of large‐scale, single‐firm operations can be obtained at competitive prices by means of a system of franchise bidding in which ownership and/or management rights are awarded to the firm that offers the public the best terms—along with a credible commitment to make good on them. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

Privatizing Waterworks: Learning from the French Experience *

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References (19)

Publisher
Wiley
Copyright
Copyright © 2011 Morgan Stanley
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.2011.00338.x
Publisher site
See Article on Publisher Site

Abstract

In this pair of articles, the first of which was published almost 25 years ago, two distinguished economists make and then revisit the case for privatizing the water supply. While agreeing with the general assessment that waterworks are “natural monopolies,” the authors show that privatization of such enterprises need not lead to the standard monopoly outcomes of above‐competitive prices, reduced output, or inferior service. As evidence, the authors cite the French experiment with water privatization that began in 1782 with the Perrier brothers' 15‐year contract to provide water for Parisians. Today, an estimated 80% of the French water supply is managed by private firms. And, as the French experience demonstrates, the benefits of large‐scale, single‐firm operations can be obtained at competitive prices by means of a system of franchise bidding in which ownership and/or management rights are awarded to the firm that offers the public the best terms—along with a credible commitment to make good on them.

Journal

Journal of Applied Corporate Finance – Wiley

Published: Sep 1, 2011

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