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Water Allocation Under Distribution Losses: Comparing Alternative Institutions

Ujjayant Chakravorty (), Eithan Hochman (), Chieko Umetsu () and David Zilberman ()
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Eithan Hochman: Hebrew University of Jerusalem, Postal: Center for Agricultural Economic Research, Box 12, Rehovot 76100, Israel

No 2009-8, Working Papers from University of Alberta, Department of Economics

Abstract: The distribution of water resources is characterized by increasing returns to scale. Distribution systems link water generation to its end-use. Standard economic analysis overlooks the interaction among these micro-markets - generation, distribution and end-use. We compare water allocation when there is market power in each micro-market. These outcomes are compared with benchmark cases - social planning and a competitive business-as-usual regime. Simulations suggest that institutions with market power in generation and end-use generate significantly higher welfare than the distribution monopoly and the competitive regime. However, if the policy goal is to maximize the size of the grid, a distribution monopoly is preferred.

Keywords: infrastructure; market power; spatial models; vertical integration; water markets (search for similar items in EconPapers)
JEL-codes: H41 Q25 Q28 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-02-01
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