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Abstract: Regulation in the sanitation sector in Brazil is facing a great deal of debate regarding the government level at which conceding authority should reside and how private operators can fulfill social objectives. The main objective of this study is to show that these issues are not the crucial barriers to the sector''s development when one looks at the operators'' productivity performance. Therefore, we undertake a detailed analysis of the productivity level of the current structure of the sanitation sector in Brazil. In doing so, we are able to analyze how jurisdiction of operators as well as the nature of the management, either private or public, has affected performance of the current operators. Moreover, we investigate how the absence of tariff regulation has dissipated efficiencies and allowed charging monopolistic tariffs. [Copyright &y& Elsevier]

Summary This paper investigates the effects of political (mis)alignment on public service delivery when mandates are shared between state and local governments. We analyze local sewage treatment policies in the state of São Paulo, Brazil. The Brazilian Constitution divides the mandates related to the control of water pollution. It gives the mayors of municipalities the control of local sanitation services while the governor of the state of São Paulo is responsible for the quality of water bodies (watersheds and rivers). As a result, the state government and municipalities have conflicting objectives. The former is committed to water environmental protection while the latter do not internalize the externalities associated with dumping raw sewage that affect neighboring municipalities. In this paper, we argue that informal arrangements between state and local authorities play a key role in addressing this principal–agent problem or moral hazard issue. Given that constitutional debates have failed to set up a regulatory framework, the de facto solution is a more informal type of regulation anchored in the political leverage of the governor. In particular, the hierarchy within a political party allows the governor to provide aligned mayors with tailored incentives to improve local sanitation infrastructure. As a result, aligned municipalities should, on average, allocate more resources to sewage treatment. Relying on difference-in-differences estimations, we establish a causal relationship between political alignment and higher sewage treatment provision. We find that sewage treatment provision is between 18% and 46% higher in municipalities in which the mayor is aligned with the governor of the state of São Paulo. [ABSTRACT FROM AUTHOR]