Three Essays on Water Economics

This dissertation focuses on the issue of water infrastructure renewal in potable water distribution networks. I investigate the reasons why water infrastructure in certain water utilities are not renewed. This dissertation is divided into three chapters. The first chapter is based on theoretical models that solve for the optimal water main network quality index. The second chapter studies the optimal timing of water mains replacement. And finally, the third chapter is based on an empirical study on the factors that influence the water main replacement rates in French utilities.In the first chapter I present a static cost minimisation model to solve for the cost-efficient water main quality index. This quality index is defined as the proportion of ``new" mains (which we denote as ''good quality mains'') to the total length of mains. The solution depends on the arbitrage between the cost of water loss and the cost of good quality mains. Where economies of network density are present such as urban utilities, water loss represents a cost burden to the water utility; hence water loss reduction (high network quality) is beneficial. Furthermore, we show that rural utilities face the largest difficulty in achieving both water loss reduction and cost recovery of network renewal.In the second chapter I present a two-stage optimal switching timing model that solves for the profit-maximising timing of water mains replacement. This model considers the option between rehabilitation and replacement. Water utilities may be inclined to rehabilitate old mains to extend their longevity since rehabilitation costs are much lower than replacement costs. We show that it is beneficial for the utilities to replace mains that are already obsolete than to rehabilitate since the generated benefit from temporary water loss reduction and the postponement of replacement is not worth the cost of rehabilitation. This is particularly noticeable in large urban utilities that face large costs of water loss.In the third chapter, I present an empirical study on the water mains replacement rates observed in French water utilities. The empirical results based on cross sectional data show that publicly operated utilities on average have higher replacement rates than outsourced utilities. This is because most of the public utilities have short total network length (very high replacement rates are associated with small network length). Moreover, small rural networks tend to conduct replacement of mains alongside other roadworks. However results also show that public utilities have higher replacement rates over outsourced ones in very large urban utilities. This result reflects the difference of priorities defined by in-house operated utilities and outsourced utilities. This difference does not imply that outsource utilities neglect network renewal; instead it reveals the nature of the structure of outsourced utilities. The responsibility of outsourced utilities are defined in the contract signed with the local authority. If network renewal is not specified, there is no incentive for replacing mains. Moreover, in practice, outsourced utilities often manifest higher prices which are accompanied by higher water quality. Furthermore, the results show that the size of the network has a large impact on replacement rates. The longer the length, the proportion of replaced mains are smaller; however, for very large utilities the negative effect disappears. The results show that replacement rates are indeed greater in very large urban utilities. This result is coherent with the theoretical models presented in the first chapter that shows the urgent need for high network quality in large urban utilities.