Public Management Versus Private Management in the Provision of Drinking Water: What is the Cheapest?

Abstract

Advocates of the privatisation/outsourcing of public sector services defend the cost savings and greater efficiency derived from this type of management. In this sense, many local governments have opted to outsource the provision of some public services. However, empirical evidence for cost savings in the provision of public services is mixed. Accordingly, we analyze if the effective cost of drinking water provision depends on the type of management carried out by the local government for a sample of more than 3,500 Spanish municipalities. We find that provision of drinking water is cheaper if it is managed directly by the local government. Therefore, our results suggest that the provision of services privately does not always guarantee cost savings.