Is private production of public services cheaper than public production? A meta-regression analysis of solid waste and water services

TLDR

Privatization of local government services is assumed to deliver cost savings, but empirical evidence for this from around the world is mixed. The study conducts a meta‑regression of all econometric studies on privatization of water distribution and solid waste collection services to test whether private production yields lower costs. The analysis attributes variation in results to differences in time period, service characteristics, and policy environment. No systematic support for lower costs with private production was found; the results suggest that ensuring cost savings requires attention to service cost characteristics, transaction costs, and policy environment rather than the public/private debate. © 2010 by the Association for Public Policy Analysis and Management.

Abstract

Privatization of local government services is assumed to deliver cost savings, but empirical evidence for this from around the world is mixed. We conduct a meta-regression analysis of all econometric studies examining privatization of water distribution and solid waste collection services and find no systematic support for lower costs with private production. Differences in study results are explained by differences in time period of the analyses, service characteristics, and policy environment. We do not find a genuine empirical effect of cost savings resulting from private production. The results suggest that to ensure cost savings, more attention be given to the cost characteristics of the service, the transaction costs involved, and the policy environment stimulating competition, rather than to the debate over public versus private delivery of these services. © 2010 by the Association for Public Policy Analysis and Management.