While most countries are committed to increasing access
to safe water and thereby reducing child mortality, there is little consensus
on how to actually improve water services. One important proposal under discussion
is whether to privatize water provision. In the 1990s Argentina embarked
on one of the largest privatization campaigns in the world, including the privatization of local water
companies covering approximately 30 percent of the country’s municipalities.
Using the variation in ownership of water provision across time and space generated
by the privatization process, we find that child mortality fell 8 percent in
the areas that privatized their water services and that the effect was largest (26 percent) in the poorest areas. We check the robustness of these estimates using cause-specific mortality.
While privatization is associated with significant reductions in deaths from
infectious and parasitic diseases, it is uncorrelated with deaths from causes
unrelated to water conditions.
That is the abstract to a very important paper, Water for Life: The Impact of the Privatization of Water Services on Child Mortality, by Sebastian Galiani, Paul Gertler and Ernesto Schargrodsky in the February 2005 issue of the JPE. (free working paper version).
In theory, water services are not an easy thing to privatize well because of natural monopoly problems and because some of the benefits of clean water are externalities. In practice, however, governments in developing countries do such a poor job at providing water that there are large potential gains to privatization even given such problems.
See also Tyler’s post Will the Middle East run out of water? for more on where water privatization may have benefits.