A critical assessment of transaction cost theory and governance of public services with special reference to water and sanitation

This paper aims to provide a critical assessment of Oliver Williamson’s work on the choice between public and private governance by focusing on his central proposition that public governance should be considered as an organisation of last resort when all else fails. Our primary argument is that Williamson’s work on public governance reflects an underdeveloped framework, mostly focusing on sovereign administration, and is not suitable for application to a host of other public services. It has the potential to corroborate any governance form that limits the usefulness of transaction cost theory (TCT) as an instrument of analysis and prediction. Although Williamson characterises TCT as an empirical success story, our application of it to the public–private dilemma for the water and sanitation sector finds very little historical and contemporary validity in this view.