Thirsting for efficiency: technological and transaction-cost explanations for the municipalisation of water supplies

This chapter advances two main explanations for the waterworks’ municipalisation trend after the late nineteenth century. On the one hand, the importance of abundant water in sustaining the technological innovation behind the new sewerage system. On the other hand, the difficulties in designing a proper regulatory framework for private firms in the water industry motivated by the high transaction costs in designing and enforcing contracts. Paradoxically, this argument is based on the study of a European city where private ownership and operation subsisted until the late twentieth century. Asking why Lisbon failed the municipalisation trend flips the conventional question on the reasons for increasing public ownership in water supplies. In a similar way to the deployment of counterfactual arguments for dealing with research questions, asking why municipalisation did not occur is similarly relevant, and perhaps even more illuminating in explaining the municipalisation movement.