DP8415 Water Nationalization: network access, water quality, and health outcomes

Author(s): Fernando Borraz, Nicolás González, Marcelo Olarreaga
Publication Date: June 2011
Keyword(s): access to sanitation, child mortality, nationalization, water quality
JEL(s): D60, F10, H51, I10, L33, O12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8415

In the case of natural monopolies there tends to be a trade-off between a higher quality of output provided by private firms, and a better access for poor consumers provided by public firms. This is partly the reflection of differences in objectives by private and public firms. The former tend to be profit-driven, whereas the latter tend to base decisions on political agendas (Chong and Lopez de Silanes, 2005). The objective of this paper is to explore the impact on network access, water quality, and health outcomes of Uruguay's nationalization of water services. An important advantage of focusing on nationalization rather than privatization is that it avoids selection bias due to cherry-picking by firms or governments at the time of privatization. Indeed, nationalization in Uruguay affected all private firms, as water was declared "part of the public domain". Results suggest that the change in ownership led to an increase in the sanitation rate, as well as improvements in water quality. It was also accompanied by a decline in water-related child mortality, although this latter e ect tends not to be statistically significant across most specifications.