Felipe Barrera-Osorio and Mauricio Olivera
tion disagreed. The effect of water privatizations on welfare, however, has not been fully studied. In fact, cross-country evidence in the region is inconclusive. On one hand, Clarke, Kosec and Wallsten (2004) show in their study for Argentina, Bolivia and Brazil that access improved in both privatized and nonprivatized zones, suggesting that “Private Sector Participation, per se, may have not been responsible for these improvements” (Clarke, Kosec and Wallsten, 2004, p. 1). On the other hand, McKenzie and Mookherjee (2003) conclude in their study for Argentina, Bolivia, Mexico and Nicaragua that increased access at the bottom of the distribution outweighs the negative effect of increased prices. The effects on quality and on poverty, though, are not conclusive. In order to address this uncertainty, this chapter studies the effects of water privatizations on consumer welfare in Colombia. In particular, the chapter measures the impact on access, quality and prices of water as well as on health outcomes. In spite of the unpopularity of privatizations, the main results suggest that privatizations have positive effects on welfare, especially in urban areas. In privatized urban municipalities, there is an improvement in access to water, and an increase in the quality of water, measured as the need for water treatment or as the aspect (clarity) of water. The frequency of the service, another measure of quality, decreases in privatized urban areas, but it increases for the lower quintiles. There is also a positive impact on health outcomes as measured by the weight for height ratio of children. In addition, in the urban areas of municipalities with better government technical capacities there are positive effects on access, payment and quality. In rural areas the negative effect of privatization on prices and strong negative effects on access to water outweigh the positive impacts on the improved frequency of the service and on improved child health, even after controlling for migration to these areas. As the results show, the low levels of support for privatizations reflected in surveys like Latinobarómetro can be explained through price effects. However, as discussed below, privatization was undertaken simultaneously with the elimination of a cross-subsidy scheme, a factor that complicates explanation of changes in price. In addition, in terms of political economy the challenge is to expand the positive effects in urban areas to rural areas as well.
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