Benchmark Competition and Water Expenditures

Should governments or private firms own water systems? Can yardstick, or benchmark, competition effectively discipline utilities? Little empirical research sheds light on these issues. We use a panel dataset that includes every community water system in the United States from 1997 to 2003 to test the effects of ownership and benchmark competition on regulatory compliance. We find that ownership does not generally affect compliance with the Safe Drinking Water Act (SDWA). Greater benchmark competition, however, is associated with fewer SDWA violations. The results suggest that ownership, per se, may not matter much, but that competition – even in its weaker form of benchmarking by consumers and regulations – can improve performance.