Do Welfare Maximising Water Utilities Maximise Welfare under Common Carriage?


Privatisation and liberalisation in the piped water industry are not very popular. Opponents of such processes fear that private companies rather optimise short term profits instead of longterm welfare (see WWF 2003 or BMWi 2001). According to a poll, almost the entire Austrian population defeats any privatisation steps in the piped water sector. The German city of Potsdam retracted the water utility privatisation in 2000 since it feared increasing water and waste water fees (see Schoenbaeck et al. 2003, p. 1 and 391). Also in several Swiss municipalities the public voted against formal privatisation which intended to adjust the water utilities’ legal constitution. The concerns about privatisation and liberalisation might root in the fact that water supply is widely seen as a natural monopoly. Hence, it tends be socially optimal to run a water monopoly as public welfare maximising utility instead of a private profit maximising company. In fact, private participation in Europe is not very developed, water supply is usually provided by municipal authorities (see Schoenbaeck et. al., 2003 or EEB, 2002). Extended subsidies from local governments indicate rather welfare than profit maximisation in the piped water sector (see Gordon-Walker and Marr 2002, p. 31).20 However, due to recent changes in the European legislation, one can expect an increasing discussion about liberalisation. Before 2000 the European Community (EC) excluded the water industry from its competition law — in contrast to other network utilities such as postal services, gas or electricity. Today, water services are neither explicitly included nor excluded in the EC competition law. Nevertheless, in their report for the attention of the European Commission Gordon-Walker and Marr (2002) argue, “there is considerable scope of application of the EC competition rules to increase competition in the water sector”.


Consumer Surplus Profit Maximisation Retail Price Water Utility Production Quantity 
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© Deutscher Universitäts-Verlag | GWV Fachverlage GmbH, Wiesbaden 2006

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