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State versus Private Sector Provision of Water Services in Africa: A Statistical, DEA and Stochastic Cost Frontier Analysis

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  • Kirkpatrick, Colin
  • Parker, David
  • Zhang, Yin-Fang

Abstract

Under pressure from donor agencies such as the World Bank, a number of developing countries have experimented with the privatisation of water services. This study reviews the existing econometric evidence on the effects of water privatisation in developing economies before presenting new results using statistical, data envelopment analysis (DEA) and stochastic cost frontier techniques and data from Africa. The study finds evidence of better performance in private utilities compared to state-owned utilities according to the statistical and DEA performance measures. But no statistically significant cost differences were discovered between private and public suppliers in the stochastic cost frontier analysis. The paper then considers reasons why water privatisation may prove problematic in lower-income economies, identifying the technology of water provision and nature of the product, transaction costs and possible regulatory weaknesses. However, a second-stage cost function analysis introducing a regulatory variable produced statistically insignificant results.

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Bibliographic Info

Paper provided by University of Manchester, Institute for Development Policy and Management (IDPM) in its series Centre on Regulation and Competition (CRC) Working papers with number 30604.

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Date of creation: 2004
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Handle: RePEc:ags:idpmcr:30604

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Keywords: Resource /Energy Economics and Policy;

References

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  1. Estache, Antonio & Rossi, Martin A., 1999. "Comparing the performance of public and private water companies in the Asia and Pacific region : what a stochastic costs frontier shows," Policy Research Working Paper Series 2152, The World Bank.
  2. Shapiro, C. & Willing, D.R., 1990. "Economic Rationales For The Scope Of Privatization," Papers 41, Princeton, Woodrow Wilson School - Discussion Paper.
  3. Pargal, Sheoli, 2003. "Regulation and private sector investment in infrastructure - evidence from Latin America," Policy Research Working Paper Series 3037, The World Bank.
  4. Paul W. Bauer & Allen N. Berger & Gary D. Ferrier & David B. Humphrey, 1997. "Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods," Finance and Economics Discussion Series 1997-50, Board of Governors of the Federal Reserve System (U.S.).
  5. Wallsten, Scott J, 2001. "An Econometric Analysis of Telecom Competition, Privatization, and Regulation in Africa and Latin America," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 1-19, March.
  6. Bayliss, Kate, 2002. "Privatisation and Poverty: The Distributional Impact of Utility Privatisation," Centre on Regulation and Competition (CRC) Working papers 30663, University of Manchester, Institute for Development Policy and Management (IDPM).
  7. Yin-Fang Zhang & David Parker & Colin Kirkpatrick, 2008. "Electricity sector reform in developing countries: an econometric assessment of the effects of privatization, competition and regulation," Journal of Regulatory Economics, Springer, vol. 33(2), pages 159-178, April.
  8. Stevenson, Rodney E., 1980. "Likelihood functions for generalized stochastic frontier estimation," Journal of Econometrics, Elsevier, vol. 13(1), pages 57-66, May.
  9. Kodde, David A & Palm, Franz C, 1986. "Wald Criteria for Jointly Testing Equality and Inequality Restriction s," Econometrica, Econometric Society, vol. 54(5), pages 1243-48, September.
  10. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  11. Parker, David & Kirkpatrick, Colin, 2003. "Privatisation in Developing Countries: A Review of the Evidence and the Policy Lessons," Centre on Regulation and Competition (CRC) Working papers 30623, University of Manchester, Institute for Development Policy and Management (IDPM).
  12. Alcazar, Lorena & Abdala, Manuel A. & Shirley, Mary M., 2000. "The Buenos Aires water concession," Policy Research Working Paper Series 2311, The World Bank.
  13. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  14. Estache, Antonio & Kouassi, Eugene, 2002. "Sector organization, governance, and the inefficiency of African water utilities," Policy Research Working Paper Series 2890, The World Bank.
  15. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  16. Antonio Estache & MartÌn A. Rossi, 2002. "How Different Is the Efficiency of Public and Private Water Companies in Asia?," World Bank Economic Review, World Bank Group, vol. 16(1), pages 139-148, June.
  17. Clarke, George R.G. & Wallsten, Scott J., 2002. "Universal(ly bad) service - providing infrastructure services to rural and poor urban consumers," Policy Research Working Paper Series 2868, The World Bank.
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Citations

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Cited by:
  1. Chen Lin & Sanford Berg, 2008. "Incorporating Service Quality into Yardstick Regulation: An Application to the Peru Water Sector," Review of Industrial Organization, Springer, vol. 32(1), pages 53-75, February.
  2. Roberto Martínez-Espiñeira & Maria A. García-Valiñas & Francisco González-Gómez, 2007. "Does Private Management Of Water Supply Services Really Increase Prices? An Empirical Analysis," FEG Working Paper Series 07/05, Faculty of Economics and Business (University of Granada).
  3. Ferro, Gustavo & Lentini, Emilio J. & Mercadier, Augusto C. & Romero, Carlos A., 2014. "Efficiency in Brazil's water and sanitation sector and its relationship with regional provision, property and the independence of operators," Utilities Policy, Elsevier, vol. 28(C), pages 42-51.
  4. Lin, Chen, 2005. "Service quality and prospects for benchmarking: Evidence from the Peru water sector," Utilities Policy, Elsevier, vol. 13(3), pages 230-239, September.

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