Water supply: Public or private?

Abstract

Most theories on private sector participation in water infrastructure are based on the sole supposed difference of efficiency between the public and the private sector. The review of 23 empirical tests and 51 case studies shows that private sector participation per se in water supply does not systematically have a significant positive effect on efficiency. Thus, the choice between public and private water delivery is probably not only a question of efficiency.We developed a complete theory of the choice between public and private water supply based on four components: difference of cost of funds, transaction costs of outsourcing, difference of efficiency and potential political cost of privatizing. Since determinants of the theory fluctuate over the time and depend on the local context, it explains both "privatization" and municipalization movements as well as why some local governments outsource water supply, while others opt for direct provision.The tests on 459 US Counties in charge of water supply in 45 States provide substantial support for the theory. Significant determinants of the choice of public versus private water delivery include the cost of funds, especially the social cost of taxes, transaction costs, the difference of efficiency and the political cost of privatizing.Moreover, we tested other literature's theories, which suggest employment as a motive of public provision and cost of public wages as a cause of privatization. These two arguments seem to be irrelevant.We additionally tested the influence of ownership on the number of drinking water environmental violations and found no significance. *

A critical assessment of transaction cost theory and governance of public services with special reference to water and sanitation

“…According to a World Bank study these costs can amount to five to ten per cent of the total value of projects (cited in Lobina and Hall 2003). Similar evidence can be found for OECD countries in Perard (2009) and for Spain in Bell and Fageda (2008).…”

Privatization of Water: Evaluating Its Performance in the Developing World

“…The decentralization of water utilities, on the other hand, occurred much more frequently in the developing world, whereby water provision was devolved to municipal governments, with partial or no privatization (Cavaliere, Maggi and Stroffolini ). Although local governments’ incentives would lie in ensuring water provision in order to ‘maximize electoral support’, the impact of decentralized and partially privatized municipal water utilities is still contested in the literature, as neither service coverage nor efficiency are always improved in this process (Perard ; Cavaliere, Maggi and Stroffolini ; Anwandter and Ozuna ).…”

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

“…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 the latter case, Spain, it is worth mentioning how many of the regions on its Mediterranean coast have become a paradigm of privatization for the different parts of the water cycle.…”