Effects of Governance Models on Affordability, Sustainability and Efficiency of the Water Services in Three Transition Countries

The analytical framework of this paper is based on the general typology of the water organizations along the usual static dimensions of privatization and decentralization. However, other dynamic governance factors, primarily the incentives, the accountability schemes and the rule of law define the actual water service performance. Outcomes of water management are measured by affordability, sustainability and water service quality, which are also influenced by external factors, such as the level of economic development, geography, etc.
Our main hypothesis is that these are the critical factors which determine the transaction costs of water management. Transaction costs are identified broadly in this model, including economic slacks and costs of managing conflicts over critical issues of water management, such as capital investments, tariff setting and allocation of service risk.
The empirical evidences are based on the analysis of water sector decentralization and the privatization trends in two countries of Central Europe (Hungary, Romania) and one from the Caucasus region (Armenia). Our analysis supports the starting hypothesis, that it is not the general framework (privatization and decentralization) that influences the service outcomes primarily, but these other factors that determine the critical conditions of effective water service management.