Ownership Relative Efficiency in the Water Industry: A Survey of the International Empirical Evidence

While there seems to be a strong consensus on the superior performance of private firms over government-owned ones in competitive industries (Shleifer, 1998, Megginson and Netter, 2001), the evidence in network utilities is less clear cut (Newbery, 1999). However, most of the papers (and the surveys) on the public-private relative efficiency in public utilities that can be found in the literature deal almost exclusively with the electricity industry, with almost no reference to the evidence in the water sector. The aim of this paper is thus to help filling this gap in the literature, analyzing and critically evaluating the international empirical evidence on the relative efficiency of public and private operators in the water utility industry. The water industry is of particular interest in its own because in all countries it is, by far, one of the least competitive of the network utility industries and with the largest share of public operators. The main findings of the paper can be summarized as follows: the large majority of studies analyzed either find private operators less efficient or are unable to find any significant difference with their public counterparts; and this conclusion appears to be robust to the time period, the sample and the estimation methodology employed. Those results are then briefly discussed arguing that policymakers should focus more on competition and incentive regulation issues rather than on ownership per se.