Ownership and performance of water utilities

Abstract

The purpose of this paper is to critically assess what is known regarding the relationship between the ownership and performance of municipal water utilities. Theoretical arguments that draw on property rights, public choice and principal agent models emphasise the difficulty that governments have in monitoring and providing proper incentives for utility managers. These models predict that privately owned water utilities will outperform public ones. However, these models are not without their limitations and critics. Accordingly, we turn to the empirical evidence from the United States, the United Kingdom and France. These studies reveal that there is no compelling evidence to date of private utilities outperforming public utilities or that privatising water utilities leads to unambiguous improvements in performance. However, there is some evidence that public-private partnerships in these countries may facilitate efficient and sustainable operations. The paper concludes by examining the conditions that promote successful public-private partnerships.