Sanford V. Berg

Risks, Contracts and Private Sector Participation in Infrastructure

This article examines how risk is reflected in infrastructure regulatory contracts, using examples from water utilities to illustrate key points. Partnerships between public and private sectors in capital intensive network services require risks to be assigned to the contractual party that is better able to mitigate them or to bear them. After identifying risks that must be addressed in infrastructure contracts, their classification, allocation, and impact are presented along with the measures to minimize risks. We analyze two contracts in the water sector in Portugal. One arrangement corresponds to a public-private partnership (PPP) of purely contractual type (concession arrangement) and the other to an institutionalized PPP (mixed company). We conclude that risk is a key issue in contracts with the private sector: an appropriate allocation of risks is a necessary condition for successful contracts.

Consistency in Performance Rankings: The Peru Water Sector

Regulators can utilize a number of alternative methodologies for comparing firm efficiency, but these approaches need to be robust to be accepted by stakeholders. This study evaluates the consistency of water-utility performance rankings for Peruvian water utilities. The results indicate that data envelopment analysis (DEA) and stochastic frontier analysis (SFA) yield similar rankings in this case. In addition, the techniques have comparable success for identifying the best and worst performing utilities. However, these rankings based on sophisticated statistical techniques are not highly correlated with those developed by the Peruvian water regulator (SUNASS). This result does not invalidate the performance rankings obtained by the regulator, since those rankings are based on more dimensions of utility performance. However, they illustrate the importance of developing sound techniques for identifying weak utilities. Improvements in sector performance require that benchmarking be given greater attention than in the past.

Nonparametric Benchmarking of Japanese Water Utilities: Institutional and Environmental Factors Affecting Efficiency

AbstractAlthough the Japanese water sector is economically and socially important, few empirical studies are available to help analysts and policy-makers understand the performance patterns in the industry. This study applies data envelopment analysis to 5,538 observations of 1,144 utilities that supplied drinking water between 2004 and 2007. With a comprehensive census of utilities, the present study controls for many factors affecting efficiency: region, prefecture, ownership/governance, water source, vertical integration (purchased or produced alone), water or integrated system, production, treatment, transport and distribution of water), peak factor, per capita consumption, customer density, water losses, monthly water charge, outsourcing, subsidies, gross prefecture product, and time. Thus, this study derives comprehensive conclusions regarding efficiency patterns in Japan. The analysis finds that the average level of inefficiency (weighted by volume) is 57% in the constant return to scale model, but...

An Evaluation of Incentive Regulation for Electric Utilities

This empirical study examines the determinants and impacts of incentive regulations introduced by utility commissions in the late 1970s and early 1980s. Rewards for generating plant utilization and low heat rates were found to have been introduced in states whose firms exhibited relatively high managerial slack (or relatively higher costs). However, the empirical results did not find that the introduction of specific cost component incentives improved overall operating cost performance.

Corporate Courtship and Successful Joint Ventures

Joint ventures have strengths and limitations. They involve a complicated courtship period and possible separation if the arrangement does not provide mutual satisfaction. How can managers reduce the risk of failure?

Sustainable regulatory systems: laws, resources, and values

Abstract Regulators frequently face difficult economic trade-offs in their decision-making. They must know how to assess the effects of policies on stakeholders under conditions of imperfect information. Part of the art of regulation revolves around understanding the linkages between choice of market structure, design of regulatory rules, and institutional requirements. In addition, different aspects of sector performance will be prioritized depending on the nations level of development. Three factors determine the effectiveness of independent regulatory commissions during periods of change. 1. Resources available to the organization are generally determined by the legal instrument that brought the agency into existence. Budgets require funding mechanisms and procedures promoting accountability. Resource levels and resource mix (such as the percentage of highly motivated professionals) determine the range of activities suitable for the organization. 2. The legal mandate is interpreted by the courts. Since the law itself is often the product of political compromise, initial legislation may be inadequate for the effective performance of agency duties. Agency initiatives can precede formal legislative revisions, but these are likely to be challenged by some stakeholders. 3. The values or principles supporting the agency are derived from the national culture and a shared political vision. At the birth of the agency, leaders and key professional staff may not have reached consensus regarding priorities. Agreement on fundamental principles is essential if the agency is to develop a consistent set of policies.

Developments in Best-Practice Regulation: Principles, Processes, and Performance

Abstract The art of regulation involves establishing rules that allocate value to consumers and suppliers in such a way as to maintain incentives for the firm to create value, while promoting political legitimacy in the eyes of consumers and other stakeholders.

Duopoly compatibility standards with partial cooperation standards leadership

Abstract This paper presents a model of duopolists producing differentiated substitutes. Greater compatibility between the products causes each to have a greater demand. However, each firm has a most desired location in the product space (a most preferred technical standard); deviation from that standard in the direction of the rivals standard increases compatibility, but is costly. This paper presents the equilibrium outcomes for two products under Cournot rivalry, multiproduct monopoly, second-best standards-specification, and welfare maximization. The outcome associated with partial cooperation is examined. Then the Stackelberg model is used to derive the equilibrium conditions for output leadership and technical standards leadership. This model of technological externalities allows us to compare and evaluate different standards-specification processes.

Joint Ventures, Competition, and Technological Complementarities: Evidence from Chemicals

Joint ventures are an important organizational form that facilitates inter-firm cooperation; yet, there has been little rigorous analysis of motivations for and implications of joint ventures.1 This investigation focuses on the U.S. chemical industry, an industry in which joint ventures were undertaken than in any other two-digit industry (except petroleum), between 1964 and 1973. This paper presents and tests a model in which firms used joint ventures as a means for augmenting their technological activities. The process of technological agumentation is not restricted to joint ventures, and can be accomplished through other in-house and inter-firm activities; we explore the choise of this particular organizational form with in the chemical industry. Technological and production joint ventures offer, to differing degrees, (1) the expectation of low time lags between the initial investment period in research and development (R&D) and the

The measurement and encouragement of telephone service quality

Telephone service quality is an important but understudied aspect of industry performance in response to industry performance in response to new technological opportunities and a new regulatory environment, we must be able to measure quality over time (and across firms), evaluate the many dimensions of service quality in terms of some objective function, and develop incentive mechanisms for encouraging appropriate levels (and mixes) of service quality. Plain old telephone service is far more complicated than typical studies suggest, requiring researchers to rigorously analyse the costs and valuations of alternative quality improvements.