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NATURAL RESOURCES FORUM. 1997; 21(3):161-7.This article offers a framework for developing viable drinking water services and institutional development in developing countries. The framework evolved from the authors' research and field experience in transition and developing economies. Viability is related to operative technology, appropriate organizations, and adequate cost recovery within the context of water resources, human and economic resources, sociocultural conditions, and other constraints. The ability of institutions to solve the problems of coordination and production depends upon player motivation, the complexity of the environment, and the ability of the players to control the environment. Third party enforcement of agreements are essential to reduce gains from opportunism, cheating, and shirking. Empirical research finds that per capita water production costs are 4 times higher in centralized systems and lowest in decentralized systems with coordination from a central party. Three-tiered systems of governments, regulators, and service providers are recommended. Management options must be consumer driven. The worst case scenario is consumer's reliance on vending and reselling with no alternative source of supply. Policies should have a strong focus on institutional reforms in the water sector, the development of a consumer driven water sector, facilitation of appropriate private-public partnerships, sound management of existing capital assets, a system for building viability into national strategies for the water sector, and financially self-sufficient and consumer responsible water supply organizations.