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The political side of public utilities: How opportunistic behaviour and yardstick competition shape water prices in A ustria
Author(s) -
Klien Michael
Publication year - 2015
Publication title -
papers in regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.937
H-Index - 64
eISSN - 1435-5957
pISSN - 1056-8190
DOI - 10.1111/pirs.12101
Subject(s) - yardstick , competition (biology) , politics , incentive , economics , lag , public economics , microeconomics , political science , law , ecology , computer network , geometry , mathematics , computer science , biology
This paper studies the effect of politics on water prices in A ustria. When public utilities are under political control, price setting may be affected by political incentives. Besides theories like the political budget cycle, more current research stresses the role of spatial interactions between jurisdictions (yardstick competition). The paper tests for both local political determinants and yardstick competition using a spatial lag model. The results suggest that water prices are lower when political competition is strong and before elections. At the same time the magnitude of the political budget cycle appears to depend upon neighbouring jurisdictions, thus confirming yardstick competition as an indirect determinant of water prices.