Public or Private Drinking Water? The Effects of Ownership and Benchmark Competition on U.S. Water System Regulatory Compliance and Household Water Expenditures

Abstract

Whether water systems should be owned and operated by governments or private firms is intensely controversial, and little empirical research sheds light on the issue. In this paper we use a panel dataset that includes every community water system in the U.S. from 1997-2003 to test the effects of ownership and benchmark competition on regulatory compliance and household water expenditures. We find that when controlling for water source, location fixed effects, county income, urbanization, and year, there is little difference between public and private systems. Public systems are somewhat more likely to violate the maximum levels of health-based contaminants allowed under the Safe Drinking Water Act (SDWA), while private systems are somewhat more likely to violate monitoring and reporting regulations. The results are reversed for systems that serve more than 100,000 people. Household expenditures on water at the county level decrease slightly as the share of private ownership increases, contradicting fears that private ownership brings higher prices. While direct competition among piped water systems is practically nonexistent, we find that benchmark competition among water systems within counties is associated with fewer SDWA violations and, when combined with private ownership, lower household expenditures. Overall, the results suggest that absent competition, whether water systems are owned by private firms or governments may, on average, simply not matter much.

Keywords: drinking, water, public, private, benchmark, competition

JEL Classification: H00