Privatization for the Public Good?: Welfare Effects of Private Intervention in Latin America (David Rockefeller Center for Latin American ... Rockefeller Inter-American Development Bank)

253 Pages·2008·2.65 MB·English

by  Inter-American Development Bank

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Privatization for e
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the Public Good? t
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Welfare Effects Au
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of Private Intervention n
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in Latin America b
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Alberto Chong n b
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Editor cw
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Inter-American Development Bank p
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David Rockefeller Center for Latin American Studies
Harvard University
©2008 Inter-American Development Bank
1300 New York Avenue, N.W. d.
Washington, D.C. 20577 e
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Co-published by e
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David Rockefeller Center for Latin American Studies e
Harvard University r

1730 Cambridge Street s
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Cambridge, MA 02138 h
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Copyright© by the Inter-American Development Bank. All rights reserved. No l b
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part of this book may be reproduced or utilized in any form or by any means, Au
electronic or mechanical, including photocopying, recording, or by information p
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storage or retrieval system, without permission from the IDB. g
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Produced by the IDB Offi ce of External Relations B.
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To order this book, contact: a
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IDB Bookstore mw.
Tel: [phone] pw
Fax: [phone] ow
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E-mail: [email protected] e
www.iadb.org/pub ve:
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The views and opinions expressed in this publication are those of the authors and n b
do not necessarily refl ect the offi cial position of the Inter-American Development ae
Bank. cw
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Cataloging-in-Publication data provided by the At
Inter-American Development Bank -si
Felipe Herrera Library ervi
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Privatization for the public good?: welfare effects of private intervention in Latin Io

America / Alberto Chong, editor. heati
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p. cm. y
Includes bibliographical references. bor
ISBN: 978-1-59782-060-8 © nf
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1. Privatization—Latin America—Social aspects. I. Chong, Alberto. II. Inter-
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American Development Bank. III. David Rockefeller Center for Latin American io
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Studies. y
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HD4009 P84 2007 LCCN: 2007940419 CF
Cover Design: Ultradesigns.com
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Table of Contents s
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FOREWORD ..........................................................................................v nr
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Santiago Levy B.
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ACKNOWLEDGMENTS .........................................................................ix ei
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CHAPTER 1. o
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On the Social Effects of Privatizations in Latin America.........................1 e
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Alberto Chong et
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CHAPTER 2. ae
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Water Expansion in Shantytowns: Health and Savings ........................25 i
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Sebastián Galiani, Martín González-Rozada and eu
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Ernesto Schargrodsky At
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CHAPTER 3. t
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The Impact of Electricity Sector Privatization on Io

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Public Health .............................................................................43 hat
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Martín González-Eiras and Martín A. Rossi
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CHAPTER 4. n
Water Sector Privatization in Colombia ............................................65 ht e i
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Felipe Barrera-Osorio and Mauricio Olivera o
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iv Table of Contents
CHAPTER 5.
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Stay Public or Go Private? A Comparative Analysis d
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of Water Services between Quito and Guayaquil ...............................99 v
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Paul Carrillo, Orazio Bellettini and Elizabeth Coombs
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CHAPTER 6. s
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Access to Telephone Services and Household Income h
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in Poor Rural Areas Using a Quasi-Natural Experiment in Peru ............139 i
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Alberto Chong, Virgilio Galdo and Máximo Torero l b
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CHAPTER 7. kg/
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Learning from an Incomplete Electricity Privatization ao
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Process in Rural Peru ..................................................................163 b
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Lorena Alcázar, Eduardo Nakasone and Máximo Torero a
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BIBLIOGRAPHY ........................................................................205 pw
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CONTRIBUTORS .......................................................................229 ve:
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INDEX .....................................................................................231 n b
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Foreword s
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ccording to many opinion polls there is widespread dissatisfaction n
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with the privatization process in Latin America. This dissatisfaction B.
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has led some governments in the region to reverse some privatiza- t d
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tions and return to a model of state ownership and operation. In at least e
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some cases, however, these opinions are not supported by the empirical
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evidence available, and government reversal of privatizations may be the ow
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incorrect response to perceived or actual defi ciencies. vee:
This book provides a detailed microeconomic analysis of the impact et
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of various individual privatizations in different countries in the region. Its n b
central message is that in many cases, contrary to popular belief, society cawe
as a whole—and in particular the poor—have benefi ted from privatiza- rir
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tion. The book presents a careful analysis of the various mechanisms mo
through which privatization has an impact on welfare, an analysis that Ait
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by and large has been missing from the debate. For instance, because of ervi
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the waterworks privatization in Argentina studied in this volume, many nn
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marginal neighborhoods that previously lacked service now enjoy water e i
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connections; as a result of improved water quality cases of diarrhea have tm

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decreased signifi cantly, and reported cases are less severe. Since service bor
delivery has improved, residents no longer have to pay for cistern trucks © f
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to deliver water to their homes or, worse yet, collect water with buckets t i
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from streams. As a result of better service and improved quality, consumers gr
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have saved both time and money, even if the prices charged by the priva- yrm
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tized utility are higher than those charged by the public utility. Similarly, r
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the book argues that to evaluate the Argentine electricity privatization it CF
is necessary to consider the effect of improved electricity service on the
vi Foreword
quality of food consumed by households and, in turn, on children’s health.
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Evidently, if the supply of electric power is erratic and subject to frequent d
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interruptions refrigerators do not operate well. The book documents how, v
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as power supply improved after privatization, refrigerators worked better e
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and food did not spoil. As a result, there was a reduction in low-weight e
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births and infant mortality. s
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Or consider the impact of privatizing the telephone service on the h
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rural poor in Peru. Because the government required the private company i
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to install public telephone booths in randomly selected villages it is possible ll b
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to assess the impact of having access to telephone services and compare p
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the differences between villages with and without service. Compared n
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to residents in villages without telephone booths, benefi ciaries in more B.
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fortunate towns with telephone service enjoyed measurable increases t d
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in income, especially income derived from nonagricultural activities; this ei
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helps to both increase income levels and reduce the overall variance of the
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rural poor’s total income. While government requirements rather than the ow
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goodwill of the private company were responsible for these benefi ts, this vee:
only highlights the potential high returns of well-designed privatizations, et
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as the public company was either unable or unwilling to provide this type n b
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of service in the past. cw
While it is not possible to generalize these conclusions to all cases rir
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analyzed, the general message of this volume is that privatizations can mo
be benefi cial to society at large, and that the charge that privatizations Ait
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only benefi t rich investors at the expense of poor consumers is not nec- ervi
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essarily true in all cases. The research presented in this book is critical nn
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to the debate in the region. In particular, it points out that governments ei
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operating under the assumption that privatizations will always reduce tm

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welfare may in fact end up hurting the citizens they profess to protect. bor
The evidence presented in this volume makes a strong case that priva- © f
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tization, when accompanied by appropriate regulation, works to the t i
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benefi t of all, including the poor. With careful empirical evidence from gr
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six case studies, the book shifts the terms of the debate on privatization yrm
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and brings to the forefront regulatory issues that should be at the center oor
of the discussion. If private ownership accompanied by careful regulation CF
can lead to gains for all, reverting to public ownership will most likely not
Foreword vii
solve regulatory problems, but will instead deprive the country’s citizens
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of signifi cant welfare gains. By presenting systematic empirical evidence d
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to clarify a much-debated issue, and by carefully analyzing the arguments v
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surrounding this topic, this book makes a very important contribution in e
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an area critical for Latin America’s development. e
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Santiago Levy h
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Vice President for Sectors and Knowledge i
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Inter-American Development Bank ll b
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