The estimation of water production function: regulatory implications for water industry

Londres

Conferencia; The 3rd International Conference on Decision Making in Urban and Civil Engineering; 2002

The Conference on Decision Making in Urban and Civil Engineering

This work analyses the characteristics of the technology in the potable water production in the city of Córdoba. The analysis is oriented to determine if the market responds to a natural monopoly, or if the market is a typical monopoly. The paper consists of considering a Cobb-Douglas type production function for each one of the plants of water purification belonging to the analysed firm. This specification allows as well to derive a minimum average cost function, that depends on the parameters that describe the technology of each one of two plants. The estimations indicate that constant returns to scale exist; so the average cost of the monopoly is constant. Therefore the hypothesis that decreasing average costs exist, and therefore natural monopoly, are rejected. These results qualify, in principle, to the regulator to use the rule that fixes the price of the water to their marginal cost, or to introduce some kind of competition in the market. Anyway it must be clarified that the analysis was made in the scope of the potable water production. The study of the distribution of the water towards the consumer requires a study aside.