Getting what they pay for? 📝

Abstract

Political institutions shape how public organizations balance the costs of service provision with the quality of environmental and infrastructure services. This paper develops a theory of institutionally conditioned price–performance tradeoffs, in which regulatory oversight and electoral accountability create distinct incentives for investment, performance, and rate-setting for public and private utility organizations. Under rate regulation, investor-owned utilities seek to increase rate revenue, but must link price increases to capital improvements that improve performance. Government utilities face political pressure to keep rates low, and so policymakers defer investments that might improve performance. These institutional differences generate divergent patterns: prices correlate with performance for investor-owned utilities, but not for government utilities. We offer an initial test of this argument using original national pricing data for local government and investor-owned water utilities, linked to U.S. Safe Drinking Water Act compliance data. Findings demonstrate how institutions shape resource allocation and management in essential public services under government and investor ownership.