An Evaluation of the Policy Response to Drought in the City of São Paulo, Brazil: An Election Cycle Interpretation of Effectiveness

Abstract

Drought can have large, negative impacts on livelihoods and development outcomes in low- and middle-income countries. This highlights the need for drought response policies that can mitigate these impacts. We evaluate the policy response to the 2014–15 drought in Brazil that reduced the supply of water to the largest city in South America, São Paulo, by approximately one-third. Using microdata on household water consumption and a difference-in-difference design, we find that a penalty-based instrument induced household conservation behaviour but that a reward-based instrument did not. We examine why the reward-based instrument, which was both ineffective and expensive, was implemented at all. Our suggested explanation lies in political budget cycle theory. Exploratory tests imply that the reward-based instrument increased the share of votes to the incumbent governor. Penalty-based instruments are the technically effective drought response, but water sector decision makers in developing countries may need to contend with the distortionary effect of electoral cycles to implement them.