Publication: (Un)bundling Public-Private Partnership Contracts in the Water Sector : Competition in Auctions and Economies of Scale in Operation
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Date
2008-01
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Published
2008-01
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In public-private partnership transactions in the water sector, one of the alleged concerns is that there is little market competition at the auction stage. This paper casts light on a tradeoff between the competition effect at the auction level and potential economies of scale in service operation. If the authorities design a large-scale public-private partnership water transaction, it is expected to exploit operational scale economies. But the competition effect may have to be sacrificed. The paper shows a risk that the selection of the contract size could be a very restrictive condition that excludes many prospective bidders. Moreover, the paper quantifies the optimal size of public-private partnership contracts in the sector by estimating a cost function. The analysis shows that economies of scale exist but tend to diminish quickly as production increases. When the amount of water sold exceeds about 40 million
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“Iimi, Atsushi. 2008. (Un)bundling Public-Private Partnership Contracts in the Water Sector : Competition in Auctions and Economies of Scale in Operation. Policy Research Working Paper; No. 4459. © World Bank. http://hdl.handle.net/10986/6457 License: CC BY 3.0 IGO.”
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