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The Buenos Aires Water Concession


Lorena Alcázar


Universidad del Pacifico, Peru

Manuel A. Abdala


Law and Economics Consulting Group (LECG), LLC

Mary M. Shirley


The Ronald Coase Institute

April 2000

World Bank Policy Research Working Paper No. 2311

Abstract:     
Transparent, rule-based decisionmaking is important to maintaining public trust in regulated infrastructure. The Buenos Aires water and sanitation concession led to remarkable improvements in delivery and coverage of services and to lower prices for consumers. But a poor information base, lack of transparency in regulatory decisions, and the ad hoc nature of executive branch interventions make it difficult to reassure consumers that their welfare is being protected and that the concession is sustainable.

The signing of a concession contract for the Buenos Aires water and sanitation system in December 1992 attracted worldwide attention and caused considerable controversy in Argentina. It was one of the world's largest concessions, but the case was also interesting for other reasons. The concession was implemented rapidly, in contrast with slow implementation of privatization in Santiago, for example. And reform generated major improvements in the sector, including wider coverage, better service, more efficient company operations, and reduced waste. Moreover, the winning bid brought an immediate 26.9 percent reduction in water system tariffs.

Consumers benefited from the system's expansion and from the immediate drop in real prices, which was only partly reversed by subsequent changes in tariffs and access charges. And these improvements would probably not have occurred under public administration of the system. Still, as Alcazar, Abdala, and Shirley show, information asymmetries, perverse incentives, and weak regulatory institutions could threaten the concession's sustainability.

Opportunities for the company to act opportunistically - and the regulator, arbitrarily - exist because of politicized regulation, a poor information base, serious flaws in the concession contract, a lumpy and ad hoc tariff system, and a general lack of transparency in the regulatory process. Because of these circumstances, public confidence in the process has eroded. The Buenos Aires concession shows how important transparent, rule-based decisionmaking is to maintaining public trust in regulated infrastructure.

This paper - a product of Regulation and Competition Policy, Development Research Group - is part of a larger effort in the group to analyze institutional issues in regulated infrastructure. The study was funded by the Bank`s Research Support Budget under the research project Institutions, Politics, and Contracts: Private Sector Participation in Urban Water Supply (RPO 681-87).

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Date posted: December 9, 2004  

Suggested Citation

Alcázar, Lorena and Abdala, Manuel A. and Shirley, Mary M., The Buenos Aires Water Concession (April 2000). World Bank Policy Research Working Paper No. 2311. Available at SSRN: http://ssrn.com/abstract=630683

Contact Information

Lorena Alcázar
Universidad del Pacifico, Peru
Av. Salaverry 2020
Región Metropolitana
Lima 18, Santiago Lima 11
Peru
Manuel A. Abdala
Law and Economics Consulting Group (LECG), LLC ( email )
1725 Eye Street, NW
Suite 800
Washington, DC 20006
United States
202-973-9888 (Phone)
202-466-4487 (Fax)
Mary M. Shirley (Contact Author)
The Ronald Coase Institute ( email )
5610 Wisconsin Ave., Suite 1602
Chevy Chase, MD 20815
United States
HOME PAGE: http://www.coase.org
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