ASi" kUCTURE FlOR DEVELOPMENT

For example, the optimal dimensions of a high-volt- steel mill and a residential community may both deage
transmission gnd may well be national, but the rive water from the same supplier,- but each user
volume-related unit cost savings for water can be group values the quality of the water in quite differrealized
at the municipal or submunicipal leveL ent ways. Yet, because many infrastructure faclities
Even within sectors, different production stages are locationally fixed and their products are nonhave
different characteristics. In power, size savigs tradable, users cannot readily obtain substitute serfor
generation are often exhausted at a capacity that vices that oetter suit their needs. Moreover, it is
is small relative to the size of a well-developed mar- often difficult for users to obtain information about
ket. Activities also differ in the importance of sunk service alternatives or characteristics. They cannot,
costs, another potential source of natural monopoly. therefore, "shop around" for the best source of suP-
In rilways and ports, for example, sunk costs are ply and are vulnerable to any abuse of monopoly
less significant for investments in rolling stoclk or power. With many infrastructure activities, howfreight-handling
equipment than for the fixed facili- ever, supply can be better tailored to differences in
ties. It is easier for firms to enter and exit activities demand once suppliers understand them-for exwith
a relative absence of sunk costs and thereby ample, transport can be offered at varying service
challenge one another's potential market power. and fare levels-and provided that consumers have
Such activities are said to be "contestablea" Techuo- adequate information to declare their choices. Serlogical
and econominc differences in production cre- vice markets can also be opened to alternative supate
the possibility of "unbunding" the components pliers and technologies in order to provide a differof
a sector that involve natural monopoly from entiated product (such as cellular and enhanced
those that can be provided more competitively- services in telecommunications)..
Many infrastructure services can be produced by Many infrastrucue services are almost (alvery
different technologies. Sanitation based on' though not perfectly) private goods. Private goods
improved latrines or septic tanks provides the can be defined as those that are both "rival" (consame
underlying service as does sewerage-dis- sumption by one user reduces the supply available
posal of wastes, but without networked invest- to other users) and "excludable" (a user can be prements.
Small-scale irrigation-particularly irriga- vented from consuming them). In contrast, "public
tion based on wells or boreholes-and small-scale goods" are neither rival in consumption nor exdudrenewable-enae-based
power generation (such as able. Markets work best in providing pure private
micro-hydro schemes) also need not involve inter- goods or services. Most of the services that the infraconnections
with large networks but can provide structure sectors produce are excludable in a specific
service highly responsive to users. Telephone ser- sense-their use depends on gaining access to a favices
can be provided over wire-based networks or cility or network, for example by connection to the
through radio-based systems.
piped water, gas, or sewer system, and service use
may be metered and charged for. In the case of rail-
Consumption chamictenstics
ways, ports, and airports, access to the entire infrastructure
can be testricted. However once a user is
As seen earlier, the demand for infrastructure ser- connected to the network utility or gains access to
vices derives from the activities of both industries the transport facility, the degree of rivalry with other
and individuals. Ensuring a flow of services of at users depends on the costs (including congestion)
least mnimium quality and quantity is often consid- imposed on existing users or on the service supplier
ered by governments to be of strategic importance, when an additional service unit is consumed.
since any interruption or restriction of supply It has been common in many countries not to
would be seen as a threat to sodety. However, be- charge users for the volume of some utility services
cause infrastructure investments are often "lumpy' consumed because the marginal supply cost was
(new capacity must be created in large increments), considered negliglile, congestion was absent, or
it is difficult for planners to match the availability of technological constraints (such as the absence of
supply with demand at all times. Costly episodes of water meters) prevented volume pnrcing. However,
over- or undercapacity often result.
recent developments, such as the increased scarcity
Beyond consuming an "essential minimum" of (and supply cost) of water, growing congestion as
certain infrastructure services, users have very di- network capacity becomes ully utilized, and techniverse
demands-although the output of large-scale, cal innovations in meterng consumption, have
monopoly providers is often not sufficiently differ- made it possible and desirable to price these serentiated
to meet these demands. For example, a vices like other private goods.
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