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This paper documents how regulatory uncertainty may undermine public service when different levels of government share a mandate on public service provision. I examine the Brazilian water and sanitation sector, which presents a natural experiment of shared provision between state and municipal companies. Using a difference-in-differences framework, I study a legal reform that clarified the relationship between municipal and state providers and eliminated any takeover threat by state companies. I find that after the reform, municipal companies almost doubled their total system investment, leading to significant increases in system access and decreases in child mortality. (JEL H77, L95, O13, O18, Q53)

Proper sanitation and waste management has important health benefits, both directly for the household making the decision and indirectly for its neighbors due to positive externalities. Nevertheless, construction and use of improved sanitation systems in much of the developing world continues to lag. Many recent interventions such as Community Led Total Sanitation (CLTS) have attempted to harness the power of social interactions to increase take‐up of improved sanitation. Most evidence to date mobilizes social pressure in rural areas, yet evidence is more scarce in urban neighborhoods where high population density may lead to larger externalities from poor sanitation decisions. We review the recent literature on how sanitation decisions are inter‐related within neighborhoods: the health externalities that sanitation decisions have on neighbors, and the social decision spillovers that drive take‐up. We explore potential explanations for the low take‐up and maintenance of sanitation systems, including the possibility of nonlinearities and thresholds in health externalities; the roles of social pressure, reciprocity, learning from others, and coordination in decision spillovers; and differences between urban and rural contexts.

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