Creating performance incentives through regulation and benchmarking

More and more governments are turning to the private sector for assistance in improving the efficiency and coverage of water and sanitation services. But successfully engaging the private sector - and, in particular, persuading the private sector take on commercial and investment risk in water and sanitation provision - depends on the broader policy and institutional environment in a country. This paper focuses on the institutions put in place to monitor and regulate service providers. Governments have two main tools in designing regulatory regimes: a. the powers that are conferred on regulators and the rules that are set out to guide regulatory decisions; and b. the design of the regulatory institutions themselves. This paper concentrates on possible approaches to these two issues in the water and sanitation sector in developing countries.