Does water utilities' ownership matter in water pricing policy? An analysis of endogenous and environmental determinants of water tariffs in Italy

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Courtesy of IWA Publishing

Owing to the growing importance of efficient water management, it has become crucial to understand water utilities' characteristics and the environmental factors affecting water pricing, so as to provide guidance to policy-makers. The analysis of factors influencing water tariffs is a challenging task in a context in which companies providing the service are characterized by different ownership features. Moreover, environmental factors and companies' characteristics may simultaneously influence both the decision to privatize the service and the water tariff level. Using a treatment effects model, where privatization is considered as an endogenous binary treatment variable, this paper analyzes whether and how certain relevant variables affect the tariffs levied by water utilities in Italy. The results show that higher tariffs are set in order to cover a greater amount of investments; furthermore, abundant water availability, measured by the average annual rainfall, significantly reduces prices. The data surprisingly show that tariffs are higher where the income level is lower. Significantly, after accounting for the endogeneity due to the fact that water firms are not randomly distributed between totally publicly or not totally publicly owned, our results seem to suggest that ownership does not influence the tariffs levied by water utilities.

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