I didn't think of the "taking advantage" view, which is now immediately obvious. I think we (economists) can present the argument in this way:Addendum: Tyler Cowen advocates "radical privitization" to solve water problems in the developing world. I think the idea fails -- a private monopoly need not be better than a public one.
Interesting, to me, that this argument is precisely the one I use wrt allocating scarce water resources -- except I DO give everyone a small, initial allocation before using price to ration the rest.
- Things are screwed up and we're running out of x.
- Since we can't give everyone the same amount of x (the "fair" outcome), we need to ration it.
- Price is the fastest way to ration x. Other ways may be possible, but we don't have time to argue.
- So we go with price rationing/gouging.
Addendum 2: I read the piece. Tyler's idea is better than the status quo (incompetent and corrupt public monopolies). It also makes sense that a private monopoly can extend the network farther by being more efficient and being able to price discriminate (ironically that will mean lower prices for the poor, e.g., as we get with pay-as-you-go cell phones). I still think it's a political non-starter, but it could be implemented by requiring a low/zero charge for the first allocation of water.
Addendum 3: We have to assume profit maximizing private corporations, and that can be a big assumption.