WHY DO LOCAL GOVERNMENTS PRIVATIZE THE PROVISION OF WATER SERVICES? EMPIRICAL EVIDENCE FROM SPAIN

Francisco González‐Gómez · Andrés J. Picazo‐Tadeo · Jorge Guardiola

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Water Governance and Infrastructure Local Government Finance and Decentralization Water Resource Management and Quality

Abstract

Why do some local governments privatize water services, while others opt for public management? Economic literature has been unable to demonstrate that private management is more efficient than public management, so there must be other reasons that lead governments to privatize the service. But what are they? This paper presents the results of a study that analyses the factors behind the privatization of water services with data from 741 municipalities located in the South of Spain over a period dating from 1985 to 2006. A discrete choice model analyses the influence of each factor on the likelihood of privatization. One of the novelties of this paper is that we take the value of the explanatory variables at the time when water services are privatized. Among our findings, it is worth highlighting the importance of the size of municipalities, their financial burden and the neighbouring effect.

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References

1996Production, Information Costs and Economic Organization 2000The New Institutional Economics: Taking Stock, Looking Ahead 1971Bureaucracy and Representative Government 2001From State to Market: A Survey of Empirical Studies on Privatization 1997The Proper Scope of Government: Theory and an Application to Prisons 1973The Property Right Paradigm 2009Production, information costs, and economic organization 2009The Effects of Privatization and Ownership in Transition Economies

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