Agency theory has also been applied to water and sanitation
Agency GW788388 has also been applied to water and sanitation services. Renzetti and Dupont (2003, p.10) argue that privately owned corporations design contracts that provide incentives to managers to choose the strategy that will maximize profits in a way that is coherent with the corporation\'s objectives. In private companies, there is less political influence.
In accordance with this theoretical framework, we propose our first hypothesis:
Brazilian WSU corporations with public management have lower tariffs than those with private management.
Approximately 15% of Brazilian water utility market revenue is under private management. We capture the effects of different types of corporations\' management with a single dummy variable: Private Management (Priv).
As mentioned, tariffs are observed as economic instruments to improve the efficiency of water management, but conflicting objectives can emerge. From the point of view of WSU, the tariffs can be an instrument for the recovery of the cost of the service, considering that the consumers must pay for the use of water or sanitation. However, clients are expected to consider that water is a basic service to meet the primary needs of citizens and that some equity principles must be followed to guarantee universal access to the service; therefore, tariffs also need to fulfill a social objective. These differences may generate conflicts of interest between clients and utilities, which must be balanced by regulators and authorities. There is also a debate in the literature: Whereas some authors argue the priority of recovering the cost of the WSU, others argue that tariffs should have an equity and social aim (Barberán and Arbués, 2009 and Iglesias and Blanco, 2008).