Does Society Win or Lose as a Result of Privatization?: Provision of Public Services and Welfare of the Poor: The Case of Water Sector Privatization in Colombia

Mar 2007
This paper studies the effects of water sector privatization on consumers' welfare in 46 municipalities in Colombia. The paper evaluates the impact of privatization on access, price, and quality of water as well as health outcomes using differences-in-differences methodology with variation across time (before and after privatization) and between treatment and control groups (privatized and non-privatized municipalities) and controlling for household and municipality characteristics. The results show positive effects of privatization, in particular in urban areas. There are four main results: (i) Privatization in urban areas increases access, has positive effects on the quality, and improves health outcomes. (ii) Privatization increases the price of water in the lower quintiles, although these effects may be the result of the joint implementation of privatization and the elimination of cross subsidies. (iii) In privatized municipalities with better governmental technical capacities there are positive effects on access, prices and quality. (iv) The positive effects of privatization in rural areas on the frequency of the service and on health outcomes are outweighed by negative impacts on access and prices.