Public Provision for Urban Water: Getting Prices and Governance Right

• Published in: Governance (Oxford) Vol. 21; no. 4; pp. 527 - 549
• Main Author: ARARAL, JR, EDUARDO
• Format: Journal Article
• Language: English
• Published: Malden, USA Blackwell Publishing Inc 01.10.2008; Blackwell Publishing Ltd
• Subjects: Bankruptcy; Cambodia; Developing countries; Drinking water; Governance; Government; LDCs; Monopolies; Performance evaluation; Populism; Price formation; Prices; Public ownership; Public policy; Public sector; Public Utilities; Regulation; Studies; Urban Areas; Water management; Water policy; Water Supply; Water utilities; Cambodia
• ISSN: 0952-1895; 1468-0491
• DOI: 10.1111/j.1468-0491.2008.00412.x

Public sector monopolies are often associated with inefficiencies and inability to meet rising demand. Scholars attribute this to fundamental problems associated with public provision: (1) a tradition of below‐cost pricing due to populist pressures, (2) owner–regulator conflicts of interest, and (3) perverse organizational incentives arising from non‐credible threat of bankruptcy, weak competition, rigidities, and agency and performance measurement problems. Many governments worldwide have shifted to private provision, but recent experience in urban water utilities in developing countries has shown their limitations because of weak regulatory regimes compounded by inherent problems of information, incentives, and commitment. This article examines the paradoxical case of the Phnom Penh Water Supply in Cambodia to illustrate how public provision of urban water can be substantially improved by getting prices and governance right. Findings have implications for the search for solutions to provide one billion people worldwide with better access to potable water.