Theories on the Provision and Supply of Goods and Services Through the Political and Bureaucratic System
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In most developing countries, the development of water resources has been dominated by the state, and the planning, construction, operation and maintenance of large-scale irrigation projects has been subject to state bureaucracies. The provision of government financing developed from a historical situation after World War II, when no private investors were able, or willing, to finance these large and costly infrastructures because their scope was beyond private endeavour. Governments thus stimulated economic development through infrastructure financing. The public provision of infrastructure financing was, and still is, regarded as a necessity, because under perfect competition - according to the standard economic conclusion - underinvestment would occur, in that individual firms could not appropriate the entire economic benefit.1 In its policy paper referring to water resources development, the World Bank points to the overwhelming trend towards government provision until the early 1980s, because “it was believed that only the state was able to handle the large investments and operations necessary for irrigation and water supply systems and that the crucial role played by water justified government control”.2 Government financing arrangements would be best able to limit free-riding, realize economies of scale in production, make the best use of technical expertise, and government intervention would internalize social costs when the number of individuals is large. The fiscal crisis in the developing world that began in the early 1980s, however, has demonstrated the weakness of governmental interventions, and experiences in public irrigation systems have not validated the positive assumptions. The misallocation of resources, the poor performance of water resource systems, the deterioriation of public infrastructure facilities and the prevalence of negative environmental effects have exposed the serious institutional deficiencies of many goverment agencies responsible for water resources, and have put to question, in general, the governments’ role. The literature has thus become dominated by the search for substitutive institutions, e.g., the market and/or civil organizations, which could offer what the states were not able to provide.
KeywordsTransaction Cost Collective Action Water Resource System Resource Unit Pure Public Good
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