Basic Network Utility Economics

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 “essential reading” – EBRD

“All infrastructure economists should read it” – Castalia





Utility economics is real economics: the classic monopoly utilities are one of the few modern businesses where economists’ advice is actually listened to by chief executives of the large firms in the industry, and by the regulators or politicians who control prices and investment in these industries.
After explaining the absolute basics of all utilities, the book reviews neoclassical textbook models of natural monopolies against the modern evidence, proposes an alternative totally general but simple sequential theory of sunk costs,which accurately predicts which industries will be natural monopolies, and then shows how to calculate forward-looking marginal costs in practice, and measure the efficiency of firms in industries without competitive pressure. A general chapter reviews the main regulation, franchising and competition policies that are used in practice around the world to rein in natural monopolies. Finally, experiences of restructuring and privatising utilities around the world are briefly summarised in four chapters covering electricity, gas, water and rail. Basic economic theory offers a well-known set of models for firms to maximise profits and society to maximise welfare. But in fact this theory falls far short of what is needed for an economist who wants to be useful. The author, a professional economist who has worked in several sectors, including 13 years in utility economics, searched in vain for a useful textbook, and so has written this one. In it he outlines the shortcomings of the classic models, and explains easily understood theories which have been tested in practice, that enable your economic analysis to be relevant.

Book available here

Book available here

This is a basic textbook, so the style is friendly and accessible. It can be read by anyone who has a basic training in micro-economic theory (‘Micro- 101’) and is familiar with simple cashflow time discounting. There are more than 110 colour diagrams, and the aim is always to explain the core idea at the heart of a technique or piece of theory in the simplest possible terms. Algebra is kept to an absolute minimum.

The book complements general microeconomic theory textbooks and is ideal for 2nd, 3rd or 4th year undergraduates studying business or industrial economics or public policy. It is also an excellent accompaniment to, or a pre-course reader for, postgraduate students studying regulatory economics. And, of course, professional economists who are entering the world of utilities for the first time should start right here.

Views from the professionals:

 “Basic Network Utility Economic is a very helpful text that explains the principles of utility economics and reform in a manner that is very easily understood by the reader. It should be essential reading for anyone seeking to reconcile economic theory with the practical problems of regulatory reform. 

Dr Elisabetta Falcetti, Director, Project and Sector Assessment, Infrastructure and Energy, Office of the Chief Economist, European Bank for Reconstruction and Development (EBRD)

 “This ambitious and original book deserves to become a standard reference for infrastructure economists, regulators and policy makers.…All infrastructure economists, regulators and policymakers should read it. Thoughtful business strategists and investors could also benefit from this book, which has the potential to considerably improve understanding and decision-making in some of the most important sectors of the economy.”

David Ehrhardt, Chief Executive, Castalia Strategic Advisors, Washington DC, Sydney, Wellington, Bogota and Paris.

“Your book is particularly valuable in providing a practical user’s guide, with the underlying theory clearly articulated, and the philosophical basis properly explained.”

Sir Ian Byatt, Director General of Water Services (Economic regulator of the water industry) for England and Wales 1989-2000, and founder of the modern system of water regulation in England and Wales.

Views from academics:

“…an easy and informative read.”

Professor Christopher O’Donnell, University of Queensland School of Economics, Co-author of “An Introduction to Efficiency and Productivity Analysis”, commenting on Chapter 7, on methods of measuring utilities’ efficiency.

“I enjoyed reading the draft chapter.”

Dr Michael Pollitt, Director of Teaching, Judge Business School, Cambridge University commenting on Chapter 3, on economies of scale and scope in the utilities.


Download the contents pages and introduction below.





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