Investment incentives and industrial organization of a network local public service

The paper explores the cost-benefit of the separation of the function of managing networks and plants activities from the function of providing the final service to users for a public utility organised as a local natural monopoly. The article analyses in particular the problem of investment incentives, given the different information structures of the two considered organizational alternatives. It turns out that the integrated solution gives rise to more socially productive investments and to lower tariffs than the unintegrated one. However the former can be socially desirable provided it doesn’t imply a too high public outlay and a too strong reduction in service quality. JEL classification: L51, L97, L12