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

  • Mauricio Olivera
  • Felipe Barrera

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 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. 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.
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  3. 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.
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  5. 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.
  6. 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.
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  8. 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.
  9. Carlos Pombo & Manuel Ramirez, 2002. "Privatization in Colombia: a plant performance analysis," BORRADORES DE INVESTIGACIÓN 003377, UNIVERSIDAD DEL ROSARIO.
  10. 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.
  11. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4303, Inter-American Development Bank, Research Department.
  12. Fiszbein, Ariel, 1997. "The Emergence of local capacity: Lessons from Colombia," World Development, Elsevier, vol. 25(7), pages 1029-1043, July.
  13. 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.
  14. Rama,Martin G., 1997. "Efficient public sector downsizing," Policy Research Working Paper Series 1840, The World Bank.
  15. 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.
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