The performance of municipal water utilities: evidence on the role of ownership.

There is growing concern about the operations of the municipal agencies responsible for supplying potable water and treating sewage, spurred by (1) difficulties of maintaining aging capital stocks in times of tightening fiscal constraints, (2) the water pollution generated by these agencies, (3) problems associated with service quality and reliability, and (4) the recognition of the role played by utilities in allocating scarce water resources. These concerns have lead to a heightened scrutiny of these agencies with increased interest in reforming their operations. In particular, this has focused on an examination of whether the ownership of water utilities is a factor explaining their behavior and whether changing their ownership will lead to improvements in their operations. The purpose of this paper was to critically assess what is known regarding the relationship between the ownership and performance of municipal water utilities. There are a number of theoretical arguments that support the prediction that privately owned water utilities will out-perform comparable publicly funded utilities. These arguments draw on property-rights and public choice theories and principle agent models in order to emphasize the difficulty that governments have in monitoring and providing proper incentives for utility managers. Empirical evidence was obtained from the United States, the United Kingdom, and France based on a variety of performance indicators. These data revealed that there was no compelling evidence of private utilities outperforming public utilities or that privatizing water utilities leads to improvements in performance.