Thirst for what? Effects of political interference in the sanitation sector on the welfare and expansion of the system
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Abstract
Context: Historically, Brazil has faced a deficit in investments in the basic sanitation sector. The service represents a case of what the literature refers to as a natural monopoly and can be provided by the state or granted to the private sector. Given the low coverage rates of water and sewage services observed in a significant portion of Brazilian municipalities and the state's inability to attract sufficient investments to the sector, this proposal aims to understand through which mechanisms this inefficiency may be generated by the interference of political cycles in the regulatory decision-making process.
Objective: Explaining theoretically the conditions that lead to political interference in the regulatory process within a context of price regulation, for a region that has not yet achieved service universalization. In a subsequent phase, the main conclusions of the model are empirically tested, taking into account the diverse characteristics of service providers.
Method: A stylized theoretical model is developed, in which an agency seeks to maximize societal well-being over two periods, with an election occurring between them. The theoretical model's conclusions are tested using an econometric model with panel data.
Conclusions: The findings indicate that municipal election cycles are negatively associated with prices set by regulators.
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