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Ownership-specific advantages and public water operations: networked governance, institutions and sustainability

Ownership-specific advantages and public water operations: networked governance, institutions and sustainability

Lobina, Emanuele ORCID: 0000-0003-4774-0308 and Hall, David (2010) Ownership-specific advantages and public water operations: networked governance, institutions and sustainability. In: Ninth Milan European Economy Workshop, ”An Agenda for the New Public Enterprise. Ownership and governance for the general interest”, 10-11 Jun 2010, University of Milan, Italy. (Unpublished)

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Abstract

Water supply and sanitation represent essential services, satisfying basic human needs (e.g. drinking, cooking and personal hygiene) and preventing public health hazards (e.g. prevention of water borne diseases through the removal and treatment of sewage). Water services represent a natural monopoly whereby the introduction of competition is mostly limited to competition for the market in the form of competitive bidding for long term concession or lease contracts. Regulation is intended to be a substitute for or a complement of competition. If the introduction of competition is limited due to the technical characteristics of the sector, regulation is also problematic due to the asymmetry of information between the regulator and the regulated undertaking. It is thus important to identify governance mechanisms that result in aligning the interests of the operator with those of the served community (Lobina and Hall, forthcoming in Barney, ed.).

Mainstream theories of the firm and the state, such as public choice, property rights and New Public Management (NPM), appear increasingly ill equipped to explain differences in performance between public and private enterprises in the provision of water services. In the last 20 years, the European Union (EU) and its member states have directed public policy to enhance market-based approaches to the reform of water supply and sanitation. Such emphasis on policies including privatisation, liberalisation and commercialisation relies on the assumption of superior private sector efficiency. However, this contrasts with the fact that: a) an increasing body of scholarly work finds no empirical evidence in support of the expected superior efficiency of the private sector at international level; b) the greatest majority of water service providers in the EU, let alone the world, consists of public enterprises; and, c) the highest levels of efficiency and effectiveness in the European and global water industry are often associated with public operators. In turn, this results in limited attention being paid to the potential contribution of public operations to water service sustainability.

This paper sets out an analytical framework for a comprehensive comparative evaluation of public and private sector performance in the water sector. Furthermore, this framework is instrumental to identifying the determinants of successful in-house restructuring and thus guiding inquiry into new models of public enterprise in the water sector. The paper builds on thirteen years of empirical research on the reform of water services in developed, transition and developing countries. It also draws on theoretical perspectives of networked governance, neo-institutionalism and sustainability. In fact, we recognise that the ownership-specific advantages of enterprises derive from the incentives to which managers are subject, the interaction between the enterprise and stakeholders, as well as the context in which the enterprise operates. Not only are ownership-specific advantages context-specific, but they also reflect the objectives inherent to water service provision. Their identification therefore requires an understanding of sustainability as a normative dimension of water service governance.

A first section after this introduction treats the inadequacy of public choice and property rights theories to explaine efficiency differentials between public and private water operators. This section sets out the rationale behind the development of an analytical framework for a renewed approach to public sector reform in the water industry. A second section introduces theoretical perspectives on governance, policy networks and New Public Services, and explores their significance for water services. This section introduces the notion of sustainability as a normative objective of water service governance. It also illustrates the various dimensions of sustainability so as to define the multi-fold purpose of water service provision. A third section looks at neo-institutionalism and the interplay between cognitive, normative and regulative institutions in the water sector. This allows us to address the interdependence between agency and structure. A fourth section addresses the implications of aligning stakeholders’ interests and resources, and locally-relevant institutions, to the attainment of sustainability objectives. These include political and institutional, social, economic, technical and environmental (PESTE) sustainability objectives. We argue that ownership-specific advantages mean that public water operations offer more promising prospects than private management for the achievement of such an alignment. Moreover, the degree of alignment between actors’ interests and resources, the design of accountability networks, and sustainability objectives is a key determinant of the quality and performance of public operations. A fifth section sets out a research agenda aimed at corroborating the theoretical hypotheses and empirical evidence on which the development of our analytical framework is based and at addressing open research questions. Conclusions follow.

Item Type: Conference or Conference Paper (Paper)
Additional Information: [1] This paper was presented at the Ninth Milan European Economy Workshop, "An Agenda for the New Public Enterprise. Ownership and governance for the general interest" held from 10-11 June 2010 at the University of Milan, Italy. [2] The paper was given on 11th June 2010 in the Session 4 stream "Public Enterprise in Network Industries".
Uncontrolled Keywords: water service governance, sustainability, institutions, rational choice theory, private sector participation, in-house provision
Subjects: T Technology > TD Environmental technology. Sanitary engineering
Faculty / Department / Research Group: Faculty of Business > Department of International Business & Economics
Faculty of Business > Public Services International Research Unit (PSIRU)
Faculty of Business > Centre for Work and Employment Research (CREW) > Public Services International Research Unit (PSIRU)
Related URLs:
Last Modified: 17 Mar 2019 17:00
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/5250

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