A case for water utilities as cooperatives and the UK experience

This article explores the creation of consumer cooperatives as a means of privatizing water utilities. The first section examines the structure of ownership and sets out Hansmann's theoretical basis for determining which category of persons is most efficiently assigned ownership. The section extends the discussion of market contracting costs by considering the externalities and social costs associated with a water utility. The heart of the paper is the second section which applies the theory of efficiently assigned ownership to the case of water utilities. The third section briefly reviews the literature on the relative efficiency of private and public utilities and also succinctly applies the theory of the firm to the question of vertical integration in the case of water utilities. The fourth section discusses the UK's experience with water utilities. The final section draws together the paper's conclusions.   The application of Hansmann's general theoretical scheme for assigning ownership leads to the conclusion that water utilities should be consumer cooperatives. Consumer-owned utilities would confront lower market contracting and ownership costs, than would investor-owned utilities. Additionally, the social costs and externalities that are particular to water are better left to consumers who are more prone to take them into account in their decisions.