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Inter-municipal cooperation in drinking water supply: Trade-offs between transaction costs, efficiency and service quality

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  • Mehdi Guelmamen
  • Serge Garcia
  • Alexandre Mayol

Abstract

Inter-municipal cooperation (IMC) is frequently promoted as a solution to improve the management of local utilities such as drinking water. Yet its effectiveness remains ambiguous: while IMC can create economies of scale, it may also induce transaction costs that undermine its benefits. In France, drinking water services are managed at the municipal level, where local governments can decide whether to cooperate—and if so, whether to adopt a purely technical cooperative arrangement or a more politically integrated, supra-municipal governance structure. Using a comprehensive panel of French water utilities from 2008 to 2021, we investigate the factors that lead municipalities to remain independent. Our econometric analysis, based on a correlated random effects probit model with a control function approach, yields several key findings. First, while IMC is associated with higher water prices, these increased tariffs are offset by better network performance, as indicated by lower water loss indices and improved water quality. Second, we find that the more politically integrated form of cooperation is more common among publicly managed utilities and among municipalities seeking to reduce their dependence on imported water. These findings provide new insights into the governance of common-pool resources, suggesting that while cooperation can improve service provision, its institutional design must carefully balance organizational costs against expected efficiency gains.

Suggested Citation

  • Mehdi Guelmamen & Serge Garcia & Alexandre Mayol, 2025. "Inter-municipal cooperation in drinking water supply: Trade-offs between transaction costs, efficiency and service quality," Working Papers of BETA 2025-07, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2025-07
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    References listed on IDEAS

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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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