An Analysis Of Water Industry Regulation Under Information Asymmetry

The thesis studies how should the regulation sector of water industry design incentive mechanism in order to maximize social welfare under information asymmetry.The thesis firstly points out that the fundamental purpose of water industry reform in China is to realize efficiency and equity, therefore regulation is a must;but the water regulation is not effective,then the thesis illustrates that information asymmetry is the root leading to many problems arising from water regulation, so information asymmetry must be solved in order to effectively regulate water enterprises.In the following, the thesis expands in terms of ways for water industry regulation by combining theory with practice. The thesis maintains that in franchising China's water industry regulation can be regarded as principal-agent to eliminate information asymmetry in regulation. In this way, the problem of regulating water enterprises has become that of analyzing the behavioral game between regulation sector and enterprises and designing incentive mechanism to realize the goal of principal.Based on the above analysis, the thesis analyzes the design of optimal incentive contract under information asymmetry through principal-agent model. Suppose that reducing water network losses are not the main objective, the rate of water network losses can be worked out through observable index in the maximization of regulation objective function, through which the effective solution to optimal contract is obtained. Furthermore, the conclusion shows that properly raising the network losses is helpful to realize the maximization of social welfare.Finally, the thesis discusses the corresponding institutional and policy suggestions on the basis of present reform of China's water industry.