Water supply privatization and child mortality

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A common argument for why water should be publicly supplied is that good water supplies are necesary for health and that the private sector can't be trusted to ensure safety and supply. In the latest issue of the Journal of Political Economics, Galiani, Gertler, and Schargrodsky report on the effect of water privatization in Argentina:
While most countries are committed to increasing access to safe water and thereby reducing child mortality, there is little consensus on how to actually improve water services. One important proposal under discussion is whether to privatize water provision. In the 1990s Argentina embarked on one of the largest privatization campaigns in the world, including the privatization of local water companies covering approximately 30 percent of the country's municipalities. Using the variation in ownership of water provision across time and space generated by the privatization process, we find that child mortality fell 8 percent in the areas that privatized their water services and that the effect was largest (26 percent) in the poorest areas. We check the robustness of these estimates using cause-specific mortality. While privatization is associated with significant reductions in deaths from infectious and parasitic diseases, it is uncorrelated with deaths from causes unrelated to water conditions.

That's a pretty strong argument that privatization isn't a bad thing and may very well be good.

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4 Comments

It would be interesting to know what the child mortality rate from water-borne pathogens was to begin with, and how that compares to the US. And of course it would be good to know how the prices moved after privatization, since privatization frequently changes prices significantly, not always in the same direction. The current economic situation in Argentina might make that comparison a bit difficult though.

I've never heard the argument that water supplies should be public because the private sector can't be trusted to provide safe water. (After all, a properly regulated private sector provides a pretty safe food supply to the entire the developed world.) The much stronger argument for public ownership of the water supply is that a water supply infrastructure is a "natural monopoly"--it's way too expensive to build multiple networks of water mains supplying, say, a whole city. Nor, as far as I know, is it reasonable to have multiple supply sources feed the mains, given that there's usually one obvious large source for the water. A privatized natural monopoly like that, if not extremely heavily regulated, would simply extract enormous monopoly rents.

Things would be different, of course, in places where the infrastructure doesn't exist, and the water supply consists of numerous local wells, individual pipelines, and perhaps delivery services of various kinds. In such cases, competition starts to look perfectly reasonable. It wouldn't surprise me if that's the situation in poorer parts of Argentina.

Dan - I too have heard that argument mentioned; it's not just Eric.

Also, natural monopolies often work better when provided privately under regulation than when provided by the state.

Dan, the food industry has repeatedly proven itself completely incapable of self-regulating basic hygeine properly, hence the widespread and universally supported government health inspections.

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