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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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Author Info
Mauricio Olivera
Felipe Barrera

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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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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers 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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  2. Rebecca M. Blank, 1999. "When Can Public Policy Makers Rely on Private Markets? The Effective Provision of Social Services," NBER Working Papers 7099, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Carlos Pombo & Manuel Ramírez, 2003. "Privatization in Colombia: A Plant Performance Analysis," RES Working Papers 3151, Inter-American Development Bank, Research Department. [Downloadable!]
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  4. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2005. "Water for Life: The Impact of the Privatization of Water Services on Child Mortality," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 83-120, February.
  5. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," RES Working Papers 4303, Inter-American Development Bank, Research Department. [Downloadable!]
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  6. Juan Camilo Chaparro & Michael Smart & Juan Gonzola Zapata, 2004. "Intergovernmental Transfers and Municipal Finance in Colombia," International Tax Program Papers 0403, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto. [Downloadable!]
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  7. AndrÈs GÛmez-Lobo & Dante Contreras, 2003. "Water Subsidy Policies: A Comparison of the Chilean and Colombian Schemes," World Bank Economic Review, Oxford University Press, vol. 17(3), pages 391-407, December.
  8. 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. [Downloadable!] (restricted)
  9. Fiszbein, Ariel, 1997. "The Emergence of local capacity: Lessons from Colombia," World Development, Elsevier, vol. 25(7), pages 1029-1043, July. [Downloadable!] (restricted)
  10. Clarke, George R. G. & Kosec, Katrina & Wallsten, Scott, 2004. "Has private participation in water and sewerage improved coverage? - empirical evidence from Latin America," Policy Research Working Paper Series 3445, The World Bank. [Downloadable!]
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