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On the Provision of Piped Water: pitfalls and opportunities

In the presence of a benevolent government, there is a case to be made for public provision of water services. Water quality is difficult to supervise and enforce, and poorly managed water services create relevant negative externalities. This might be the reason why public ownership is the most common model for the water industry in a global perspective. However, in countries with low state capacity and accountability, weak checks and balances and institutional dysfunction, public companies are frequently used to fulfill political goals instead of their stated objectives. In this context, a shift to private provision of water can substantially improve the quality and extent of the service. This solution, nonetheless, is not a silver bullet. If the same institutional fragility that creates poor public companies’ management persists, incentives for predatory government behavior remain latent, and can emerge when circumstances facilitate it. Privatization can improve provision under certain circumstances, and institutional change can help cement that improvement.