Decentralisation and supply efficiency: evidence from a natural experiment

This article examines the effect of the decentralisation of the provision of drinking water services from one level of subnational government to a lower level of subnational government over a period of time. By using 'Difference in Difference' methodology, it compares the supply efficiency of decentralised utilities with the counterfactual - that is, the efficiency of these utilities had they not been decentralised. We use expense ratio, asset utilisation and water quality as indicators of efficiency and found that decentralisation decreases supply efficiency significantly in its immediate aftermath. We also observe that this effect is moderated over time, but the decrease in supply efficiency persists in the medium term.