An Empirical Study On The A—J Effect Of The Water Industry In China

The urban water supply industry has strong natural monopoly,and is the urban development process will be a lot of infrastructure industry,if regional monopoly water companies the freedom to decide the price of water,the in order to achieve maximum benefits,will will set the price above marginal cost,resulting in the loss of social welfare.And lack of flexibility due to the public's demand for water and water prices rise in consumer surplus decreases,cause social unfair distribution,further exacerbated by the loss of social welfare,not only damage the overall efficiency of economic operation,to social justice causes certain effect.Therefore,the government must be the price regulation of water supply industry.Government price regulation of the water industry not only to ensure the welfare of the whole society,but also take into account the production efficiency of the water companies,both to promote enterprises to carry out the necessary investment to expand production,but not over stimulate so as to avoid the A-J effect.This paper discusses the current implementation of China's water industry similar to the income rate of the regulation mode of regulation may cause the A-J effect of low production efficiency,and through analysis of 24 provinces in China from 2008 to 2013 water industry data,that China's water industry under rate of return regulation has produced serious production problem of non efficiency and excessive investment.Then,according to the research and practice of the "A-J effect",the price control measures of water industry in China are put forward.The "A-J effect" is a kind of low efficiency negative effect produced by the rate of return regulation.Rate of return regulation is refers to the government regulatory agencies not direct the development of the natural monopoly industry products,the final price,but by making income rate to indirect control of the profit and loss and affect the supply price,the income of natural monopoly industry is able to compensate for the cost,and to ensure that the enterprises to invest to the appropriate rate of return,so that enterprises can continue to operate.In the rate of return regulation,the price of the product is required to be regulated in a reasonable return on capital investment."A-J effect" is under the rate of return regulation,the enterprise will produce a kind of stimulation to expand the capital base as much as possible,in order to gain the profit rate,can get more absolute profit.In this way,the monopoly enterprises in the production of monopoly products will use too much capital investment to replace labor and other inputs,which will result in the production of low efficiency.As the negative effect of A-J effect is mainly manifested as excessive investment and low production efficiency,so this paper through the construction of the model to measure the above two indicators.Through the research,this paper finds that the rate of return regulation does not promote the rise of the cost efficiency of urban water industry,and the rate of return regulation has a significant role in promoting the excessive investment in the fixed assets of the water industry.In the water industry,the negative effect of the rate of return regulation has gradually emerged,which makes the use of capital labor ratio appear distorted.The reason may lie in the factor endowments of China's urban water industry has been quietly changed,the current price regulation system is to attract capital to enter the capital to promote the development of the total amount of.Therefore,this article believes that the need for the current rate of return regulation reform.Based on the above conclusions,this paper provides policy recommendations from the following aspects of the water industry price regulation reform.This paper argues that the rate of return regulation already can not adapt to the social and economic development,need to the reform,should carry out the incentive regulation mode,according to the regulation reform practice of Europe and the United States and other countries and China's specific national conditions,this paper argues that our country should take the price cap regulation.At the same time,deepen the reform of the price formation mechanism,and gradually introduce price competition mechanism.In considering the water companies has information advantage and profit maximization motives of the premise,regulatory agencies can give water companies certain to set the price of the right,and at the same time,strengthen the monitoring efforts of enterprise cost information.From this,it can reduce the cost,improve the operational efficiency of water enterprises,and enjoy the resulting increase in profits.To reach the water industry more optimal price regulation must be along with the continuous deepening of reform,the natural monopoly industry is to establish a modern enterprise system reform,the monopoly of business enterprises to truly become the clear property rights,powers and responsibilities clear.At the same time,this article believes that the current price regulation reform effect is not ideal,and local governments have a certain relationship between the pursuit of GDP.Therefore,a necessary condition for the current regulation reform of water industry is to regulate the excessive competition behavior of local government.In the relevant basic framework and supervision,to allow local governments to combine the local reality,to develop specific local water policies and regulations and industry management model.