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Does Society Win or Lose as a Result of Privatization? The Case of Water Sector Privatization in Colombia

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  • Mauricio Olivera
  • Felipe Barrera

Abstract

This paper studies the effects of water sector privatization on consumers’ welfare in 46 municipalities in Colombia. First, the privatization process is described. Second, the paper evaluates the impact of privatization on access, price, and quality of water as well as health outcomes using differences-in-differences methodology with variation across time (before and after privatization) and between treatment and control groups (privatized and non-privatized municipalities) and controlling for household and municipality characteristics. The results show positive effects of privatization, in particular in urban areas. There are four main results: (i) Privatization in urban areas increases access, has positive effects on the quality measured as the need for treatment and the aspect of the water (e. g. , presence of particles in the water), and improves health outcomes, as well as improves the frequency of the service for the lower quintiles. (ii) Privatization increases the price of water in the lower quintiles, although these effects may be the result of the joint implementation of privatization and the elimination of cross subsidies. (iii) In privatized municipalities with better governmental technical capacities there are positive effects on access, prices and quality. (iv) the positive effects of privatization in rural areas on the frequency of the service and on health outcomes are outweighed by negative impacts on access and prices. These results suggest that the benefits found in urban areas should be expanded to rural areas, and that the service should be more targeted toward the poorest.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3230.

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Date of creation: Mar 2007
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Handle: RePEc:idb:wpaper:3230

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  1. Rama,Martin G., 1997. "Efficient public sector downsizing," Policy Research Working Paper Series 1840, The World Bank.
  2. Alberto Chong & Florencio Lopez-de-Silanes, 2004. "Privatization in Mexico," Research Department Publications 4373, Inter-American Development Bank, Research Department.
  3. AndrÈs GÛmez-Lobo & Dante Contreras, 2003. "Water Subsidy Policies: A Comparison of the Chilean and Colombian Schemes," World Bank Economic Review, World Bank Group, vol. 17(3), pages 391-407, December.
  4. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2002. "Water for Life: The Impact of the Privatization of Water Services on Child Mortality," Working Papers 54, Universidad de San Andres, Departamento de Economia, revised Sep 2005.
  5. George R.G. Clarke & Katrina Kosec & Scott Wallsten, 2009. "Has private participation in water and sewerage improved coverage? Empirical evidence from Latin America," Journal of International Development, John Wiley & Sons, Ltd., vol. 21(3), pages 327-361.
  6. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4301, Inter-American Development Bank, Research Department.
  7. Marcela Meléndez & Andrés Gómez-Lobo Echeñique, 2007. "Social Policy, Regulation and Private Sector water supply: the case of Colombia," Working Papers wp252, University of Chile, Department of Economics.
  8. Blank, Rebecca M, 2000. "When Can Public Policy Makers Rely on Private Markets? The Effective Provision of Social Services," Economic Journal, Royal Economic Society, vol. 110(462), pages C34-49, March.
  9. Albert Chong & Florencio López-de-Silanes, 2004. "Privatization in Latin America: What Does the Evidence Say?," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  10. Carlos Pombo & Manuel Ramirez, 2002. "Privatization in Colombia: a plant performance analysis," BORRADORES DE INVESTIGACIÓN 003377, UNIVERSIDAD DEL ROSARIO.
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  12. Héctor Ochoa Díaz & Jaime Andrés Collazos Rodríguez, 2004. "La evaluación del desempeño de las empresas privatizadas en Colombia: ¿Coincide con la experiencia internacional?," ESTUDIOS GERENCIALES, UNIVERSIDAD ICESI.
  13. Fabio Sánchez Torres & Michael Smart & Juan Gonzalo Zapata Giraldo, 2002. "Intergovernmental transfers and municipal finance in Colombia," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 002915, FEDESARROLLO.
  14. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
  15. Fiszbein, Ariel, 1997. "The Emergence of local capacity: Lessons from Colombia," World Development, Elsevier, vol. 25(7), pages 1029-1043, July.
  16. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
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Cited by:
  1. Fernando Borraz & Nicolas Gonzalez Pampillon & Marcelo Olarreaga, 2011. "Water Nationalization: network access, quality, and health outcomes," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 11051, Institut d'Economie et Econométrie, Université de Genève.
  2. Calzada, Joan & Iranzo Sancho, Susana, 2012. "Neither Private nor Public: The Effects of Communal Provision of Water on Child Health in Peru," Working Papers 2072/196649, Universitat Rovira i Virgili, Department of Economics.
  3. Borraz, Fernando & Pampillon, Nicolas Gonzalez & Olarreaga, Marcelo, 2013. "Water nationalization and service quality," Policy Research Working Paper Series 6318, The World Bank.
  4. Kosec, Katrina, 2013. "The child health implications of privatizing Africa’s urban water supply:," IFPRI discussion papers 1269, International Food Policy Research Institute (IFPRI).

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