Regulation of the private provision of public water related services

This paper outlines the principles believed to be essential in formulating an adequate regulatory framework for the water sector. Its focus is on the issues to be confronted in developing a regulatory structure for water related public utilities. It reviews a vast body of recent literature on economic regulation and private sector participation in the provision of water related goods and services as well as the experience of the countries where privatization and regulatory reforms have advanced most. Emphasis is given to the regulation of prices, product and service quality, investments and quantity. The alternative means of overcoming the problems of asymmetric information between regulator and regulated firms, the limited commitment powers of governments and regulators, conflicts between regulators with different mandates, government failure and regulatory capture are also discussed, as are the possibilities of introducing competition and facilitating regulation through changes in the industrial structure, including horizontal and vertical restructuring. (author's abstract)