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Desperately seeking a non-empty core—a framework for understanding cooperation among municipal water service monopolies
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DOI：10.3389/frwa.2026.1869621.png)
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Abstract
En 中文
What drives; or prevents; monopolistic providers in regulated sectors from merging into larger entities? While typically studied within public service regulation; this question carries profound socio-hydrological relevance for urban water services; as their organization directly affects key societal outcomes such as water security. Within the literature; aggregation is often approached through economies of scale. This paper argues that such outcomes cannot be explained by efficiency considerations alone. Instead; it requires a socio-hydrological perspective centered on the distribution of rents and the heterogeneity of stakeholders’ incentives—dynamics involving complex power relations and institutional lock-ins that a simple economic analysis cannot fully capture. Adopting a game theory approach; we investigate the existing rents and aggregation payoffs for the actors involved and assess whether mutually beneficial cooperation arrangements; corresponding to a non-empty core; can emerge. We develop an integrated framework combining a simplified financial model with a constrained transferable utility cooperative game involving municipalities; an incumbent utility; and a potential “Big Player; ” each evaluating aggregation based on status-quo rents and aggregation payoffs. The analysis is grounded in a synthetic case study representing a medium-sized Italian water service area; capturing institutional and economic features applicable to similar contexts: mature infrastructural settings; fragmented governance; and regulated natural monopolies where local authorities retain significant decision-making power over service organization. Tested against an extensive robustness assessment; results show that aggregation is not systematically prevented by the absence of efficiency gains; but by misaligned incentives. Municipalities may support aggregation due to political payoffs; while the operator requires financial viability; and the incumbent utility resists due to the loss of control-related rents. This leads to a divergence between financially viable and politically acceptable coalitions; implying that a stable grand coalition is structurally difficult to achieve within such institutional settings. The framework serves as a diagnostic tool to identify feasible coalitions and potential blocking actors. By demonstrating the persistence of these dynamics across a wide parameter space; the findings highlight a structural tension between industrial efficiency and political feasibility; providing a formal explanation of why efficient outcomes remain institutionally difficult to achieve even when economically justified.
Keywords:
game theory
sociohydrology
rent-seeking
water governance and management
urban water service
water monopolies
public service regulation
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360
Citations:
2.1K
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