Outsourcing and Efficiency in the Management of Rural Water Services

Abstract

Rural areas are finding it increasingly difficult to manage water services for household purposes. Local governments cannot afford the high investment and maintenance costs the service entails, leading many rural towns in Spain to outsource the service. Doing so enables local governments to balance their budgets and professionalise management in response to the more exacting requirements imposed by European water regulations. In Spain it is possible to outsource the management of the water service to a public, private or public-private company. This research applies Data Envelopment Analysis (DEA) to a sample of 80 rural water utilities in Southern Spain in order to compare the efficiency of these three forms of management. Despite initially finding that private companies and public-private partnerships are more efficient than public companies, no differences in efficiency can be observed between the three forms of management when environmental variables are taken into consideration. Results show that public-private partnerships are no less efficient than fully private or fully public companies.