Industrial Organisation and Public Policy in the Water Sector

The present article examines public policy issues in the Italian water sector in relation to industry structure, ownership issues, governance and regulation based on a review of national and international experiences and taking into account the current industry performance. Despite the inefficient size of water companies and a significant investment need, full nationalisation of the sector (which is already controlled by Municipalities) and preserving (potentially increasing) a fragmented industry structure, as emerged in the public debate that took place in 2019, do not appear suitable for improving quality and efficiency. On the contrary, it appears necessary to consider reforms of the management model that would strengthen the link of the incentives faced by companies and their managers with the customer preferences and would promote public interest objectives, without abandoning private ownership. Independent regulation is a means to achieving such objectives, for example by fostering a greater control and monitoring role as well as implementing tools for customer engagement at the local level. The enforcement of tariff rules at the national level represents another desirable policy. Moreover, overcoming the existing fragmentation would result in greater efficiency. However, such measure does not appear to be on the policy agenda.