Click here for search results
The pricing dynamics of utilities with underdeveloped networks
 
Author:Chisari, Omar O.; Kessides, Ioannis N.; Collection Title:Policy, Research working paper ; no. WPS 4198
Country:World; Date Stored:2007/04/09
Document Date:2007/04/01Document Type:Policy Research Working Paper
SubTopics:Urban Water Supply and Sanitation; Infrastructure Regulation; Economic Theory & Research; Markets and Market Access; Access to MarketsLanguage:English
Region:The World RegionReport Number:WPS4198
Volume No:1 of 1  

Summary: This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of a retaliatory regulatory review that is increasing with the price it charges. This simple dynamic optimization model yields a number of powerful policy insights and conclusions. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises restraint in the early stages of network development by holding price below the limit defined by the unit costs of the fringe. The utility's optimal price gradually converges toward the limit price as its network expands. Moreover, when the utility is threatened with retaliatory regulatory intervention, it will generally have incentives to restrain its pricing behavior. These findings have important implications for the design of post-privatization regulatory governance in developing countries.

Official Documents
Official, scanned versions of documents (may include signatures, etc.)
File TypeDescriptionFile Size (mb)
PDF 28 pagesOfficial version*0.46
TextText version**
How To Order

* The official version is derived from scanning the final, paper copy of the document and is the official,
archived version including all signatures, charts, etc.
** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
It is provided solely to benefit users with slow connectivity.



Permanent URL for this page: http://go.worldbank.org/VF9R8KNWE0