The Economics of Contracts: Theories and Applications

By Eric Brousseau; Jean-Michel Glachant | Go to book overview

24
Contractual choice and performance:
the case of water supply in France
Claude Ménard and Stéphane Saussier

1 Introduction

A great variety of contractual arrangements coexist today in the provision of public utilities such as water supply, urban transportation, and electricity. In the extensive set of modes of governance to which these arrangements correspond, the “purely” integrated form of a service provider owned and managed as a public “bureau” appears as a very specific case, and maybe one in extinction. The general reexamination of public provision for these services that developed in the 1980s raises the issue of the extension of government activities. This question by far exceeds the problem of privatization, with which it is too often identified. Beyond the transfer of property rights, important decisions must be made about the choice of the most satisfactory mode of governance for providing these services. Research by Hart, Shleifer and Vishny (1997) and Williamson (1999) looks for more rigorous analytical foundations to the resulting trade-off.

With regard to these issues, the case of water supply is a particularly rich domain. There is no doubt about the importance of guaranteeing safe and regular provision of water to the population. However, the choice of the most relevant mode of governance for doing so efficiently, i.e. at a low price and with high quality, remains an open question. Studies such as Ménard and Shirley (1999) show a significant dispersion of results for similar contracts, suggesting a major impact of institutional factors. Depending on the context, public providers sometime perform quite well while, symmetrically, private operators also fail. Other studies claim that disengagement of local authorities in favor of private sector participation systematically improves performance, at least under certain conditions (World Bank 1995; Gatty 1998). Last, empirical surveys show innumerable malfunctions, whatever the mode of governance is (Cour des Comptes 1997).

The French situation presents an exceptional terrain for studying these questions. Water supply has been under local responsibility for centuries, generating a wide variety of solutions. At the same time the rules of the

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