Ownership and Performance in Water Services Revisited: Does Private Management Really Outperform Public?

Abstract

Since the late 1970s, water services have been privatised in some developed countries in an attempt to improve performance. However, after three decades of privatisations the superiority of private management is being questioned and several cities are returning to public provision. In this paper we revisit the relationship between ownership and performance in urban water services management using directional distance functions, metafrontiers and Data Envelopment Analysis techniques. The performance in the provision of water delivery services in 70 Spanish municipalities is assessed at the level of the management of specific production factors; moreover, we discuss whether differences in efficiency between private and public decision units are due to either different capabilities of managers (managerial efficiency) or different technological restrictions (ownership efficiency). Our main finding is that private management is more efficient in the use of labour input, mainly because of the technological restrictions faced by public management units, such as legal and institutional restrictions. Conversely, private management appears to be less efficient at managing operational costs.

What Governance? The Role of Public and Private Stakeholders in Water Supply Management in Mediterranean Coastal Tourist Destinations: The Case of the Costa Brava

“…One of the forces of change that affects water management and therefore explains governance is the interaction between the public and private entities in charge of resource management [19]. Water is a resource that must respond to vital economic, social and environmental needs; it requires a strong initial capital investment and involves high maintenance costs [24]. Therefore, alternation between public and private water management has been the centre of debate in the water sector, especially regarding the best option to prevent the collapse of the system and achieve efficient distribution of the resource that guarantees the needs of the population are met.…”

“…Throughout the history of urban water supply, public management has been the most common form of administration [25]. However, the wave of industrial deregulation that took place during the 1970s in the English-speaking world [24] and during the 1980s in the United States [25] encouraged the private sector to increase its participation in water management, a common practice in many developed countries today. For example, taking data from 2007, the private sector supplied water to more than 70% of the population in France and the United Kingdom; between 50 and 70% in the Czech Republic; and between 30 and 50% in Greece, Italy and Spain [26].…”

“…In addition, the process of privatizing urban water supply management has often led to negative changes in the working conditions of the service itself such as layoffs, salary freezes and/or social benefit cuts, among others [27]. In this regard, the re-municipalization of the service emerges as an alternative to possible private sector management failures [24], although it can also represent a clear example of the desire of local politicians to gain more control over the water supply system [27] or a response to the many social movements opposing the privatization of water supply services [30]. These movements advocate municipalization to improve the environmental quality of water ecosystems and working conditions, and even to achieve a more democratic urban environment [27].…”

Singapore and Sydney: Regulation and Market-Making

“…Lots of literature has investigated the impact of private sector participation on the performance of utilities, but the conclusions are diverse. Some empirical studies found that private sector participation improved performance regarding a range of indicators, such as quality of services, productivity, and labor management [3][4][5][6][7][8]. However, other studies found that GOUs were superior with higher technical efficiency [9] or better financial shape and more investments [10].…”

“…A few of those studies that claimed private operators to be more efficient also pointed out that GOUs seemed to be less debt-dependent [11]. Nevertheless, Suárez-Varela et al [5] summarized that a large volume of empirical studies, such as Hon et al [12] and Estache et al [13], found little correlation between the ownership and efficiency in the provision of water services. Given these, while there was…”