Regulating Infrastructure Industries

Amnesia is widely criticized for its poor infrastructure. The water pipelines leak and the water quality does not comply with contemporary environmental standards. The railways — the vertically integrated national monopolist (publicly owned AmnesiaRail) — are loss-making. The sole profitable part of the railway network consists of commuter services to Amnesia’s capital, Frenezia, on which commuters rely to get to work. Elsewhere in Amnesia, most citizens prefer to use private transport. However, it is politically impossible to close down railway services. Amnesia’s government has committed itself to liberalization and competition, but also to maintaining railway services at the present level.Advise Amnesia on how you would set up railways and the water domain in Amnesia and how you would regulate it. In particular, consider options for (a) the type of regulatory regime, and (b) the ownership and structure of the industry.