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In general the poor are handicapped with respect to both allocation mechanisms i because of their low purchasing power and ii because of their political voicelessness and powerlessness 5.

This can be achieved e. It does, however, not necessarily imply State ownership of service providers. The choice of this model has often been justified on equity and efficiency grounds.

Equity and Efficiency in the Reform of Price Subsidies : A Guide for Policymakers

Unfortunately, in many cities in developing countries this traditional model has been associated with disappointing achievements both with respect to the equity and the efficiency goal According to an important strand in literature 13 , the main reasons for the bad performance lie in the negative consequences of i State ownership and ii absence of competition on the operational efficiency 14 of service providers.

As there are no private shareholders that press the management to use inputs in the most efficient way to maximize profits, and as customers cannot sanction bad service by switching the supplier, managerial slack occurs.


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Moreover, management decisions are not taken according to a business logic but according to a political logic with the consequence of a low-level equilibrium Assessing the success of this strategy has been a matter of controversy. As far as the academic debate is concerned, the picture is inconclusive Most analysts acknowledge improvements in operational efficiency but underline that overall success has been diminished by ineffective regulation and insufficient poverty orientation.

Typically it is claimed that PSP is inequitable and worsens the situation of the poor. With respect to the polemic issue of PSP recent proposals are less dogmatic Even when relying exclusively on private utilities for service provision, the State is necessary for economic and environmental regulation and for poverty orientation.

What market failure and State failure theories have in common is that they describe conditions under which self-centred behaviour of individual actors does not lead to a maximization of the social goals equity and efficiency, i. This is related to weaknesses in political governance.

This is related to weaknesses in administrative governance. Example: subsidies do not reach the poor because the public administration exercises its discretional power to use the money for the pursue of particularistic interests which in its turn is facilitated by a low transparency of budget processes, a weak accountability of the public administration and a lack of effective sanctioning mechanisms. Through the decentralization process started in the responsibility for service provision and infrastructure assets were transferred from the national level to municipalities.

Before, there had been a mixed responsibility with the major cities having been served typically by municipal corporations and the remaining urban and rural areas by national-government-owned providers managed by the Instituto Nacional de Fomento Municipal INSFOPAL. The most important changes were i the establishment of regulatory agencies at the national level with the mandate to regulate tariffs and enhance competition, ii the introduction of the principle of cost covering tariffs, iii corporatization of service providers and promotion of PSP, as well as iv the creation of institutions for user participation.

The public utilities law no.

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The subsequent analysis concentrates on policy weaknesses not so much on achievements and potential connections to governance failures. Finally some general conclusions are presented. Table 1. Coverage in rural areas is much lower than in urban areas more or less half. By only Again rural areas differ markedly from urban. Differences between poor and rich are much bigger on the countryside poorest decile: Differences between poor and rich as well as between rural and urban areas are less pronounced when in addition to in-house connections other improved WS services wells, public standpipes are taken into consideration Figures for the total sample of 26 service providers have developed into the desired direction change except for unaccounted for water that has increased by 8.

Except for coverage with sewer connections, providers with PSP show more significant improvements than those without PSP the latter actually have worsened with respect to unaccounted for water and collection rate. When looking at average levels of the indicators however, providers with PSP perform worse except for the collection rate Real tariff increases have coincided with some improvements in coverage and operational efficiency see above but also with higher proportional spending of low-income households. Colombia is a special case as compared to international practice because responsibility for economic regulation is split.

The task of defining tariff and quality of service levels is done by CRA, control is accomplished by SSPD and monitoring is a shared responsibility of both agencies. The 1, municipalities existing on Colombian territory accomplish their task of service provision by a variety of organizational forms: incorporated enterprises with or without PSP ; directly by the municipal administration or, especially in rural contexts, by different forms of community organizations.

The main resources to finance service provision come from tariffs paid by users and publicly funded subsidies see below. Table 3. Distribution of responsibilities according to territorial levels of government. In the case of CRA independence can be questioned because of several features contradicting typical formal safeguards that would support independence 37 : A ministries are directly involved in the decisions of the regulatory commission: 3 out of 7 members are ministers — the remaining 4 are technical experts. B Technical experts are appointed exclusively by the executive President — the legislative branch is not involved.

C Appointment of technical experts is not based on a transparent and competitive selection that would assure technical expertise. The revision of the old methodology is very necessary because it contained hardly any incentives for efficiency which means that tariff increases may partially reflect rents and inefficient costs especially in big and intermediate cities where tariff increases have been substantial.

Formal safeguards that prevent detrimental influence of the municipal government are strong in case of a private incorporated enterprise, average in case of a public incorporated enterprise and more or less absent in case services are provided by the municipal administration. There is some empirical evidence indicating that detrimental political influence may be a bigger problem in the case of public provision: A one indicator for political interference is the frequency of change of the general manager.

Unfortunately this indicator is only available for a small non-representative sample of 4 service providers 2 public incorporated enterprises; 2 private incorporated enterprises for which it was collected during this investigation. Whereas both public enterprises have had 6 general managers between and , one private enterprise had 4 and the other 1 during the same period.

B As has been already discussed above see table 2 , providers with PSP on average showed improvements in both indicators for operational efficiency unaccounted for water and collection rate between and whereas providers without PSP on average worsened with respect to these indicators. C Many public providers especially in intermediate and small cities did not implement tariff increases that would have been necessary to approximate cost covering levels because tariff increases were blocked by municipal governments With respect to their principal objective, it can be distinguished between subsidies i aiming at lowering the cost of connecting to the service for lowincome households who lack access and those ii aiming at lowering the cost of using the service for low-income households who already have access in order to guarantee affordability and to prevent withdrawal from the service In the academic debate the first objective is considered as more relevant, especially in countries where access is low and lack of access correlates negatively with income Access in Colombia see table 1 cannot be considered as very low: as compared to 20 other Latin American countries, in Colombia ranked on position 5 water and 6 sanitation Lack of access to both services is much more common in rural areas where approximately In rural areas there is a clear negative correlation between lack of access and income whereas in urban areas this negative correlation holds only for sanitation services Direct subsidies to the demand side are typically the most preferred instrument among economists because contrary to crosssubsidies they do not distort the price signal and are thus less harmful for allocative efficiency The bulk of these resources come from the national budget.

It can be seen that earmarked transfers 47 to municipalities within the framework of the decentralization law no. Transfers are earmarked to be used for the environmental services sector but the administration of these funds and the spending decision are made by municipal governments. These transfers are not only the most important source of subsidies, they are important even when compared to the GNP of the whole sector: Table 4. The targeting of local spending depends exclusively on the priorities and decisions of the municipal government which in turn are influenced by local political governance.

This spending pattern could be related to the political voicelessness of the rural poor. However, there are concerns with respect to the efficient use of transfers B Fiscal control and auditing procedures related to transfers are weak. C Funds are used for items that have no direct impact on coverage expansion e. D Due to lacking technical expertise and lacking articulation between the planning activities of the municipal administration and the service provider, funds are used for infrastructure projects that are unsuitable or unworkable.

All consumers are divided into four classes: industrial, commercial, official and residential the latter is by far the most important class by number and consumption. Residential consumers are again subdivided into 6 socio-economic strata 1 being the poorest and 6 the richest. Classification of residential consumers is a responsibility of mayors and is done based on a standardized methodology provided by the National Department of Statistics which considers basically the characteristics of the housing unit Moreover, cross-subsidies do not redistribute from rich to poor but are slightly regressive.

B The share of consumers that are eligible for receiving cross-subsidies is constantly increasing. C The cross-subsidy-scheme is not operational in smaller and poorer cities and localities because there exist no consumer classes that pay a surcharge. This means that deficits between the cost of service as regulated by CRA and tariff revenues have to either be covered by the municipal government that can use earmarked transfers for that purpose or by the service provider which means that necessary expenditures may have to be postponed and service quality may decrease.

The losers of the Colombian subsidy policy seem to be the rural poor. This result supports the hypothesis that politicians and policy-makers allocate subsidies to benefit urban constituencies that have relatively more political power and are better organized. This pattern of behaviour is related to weaknesses in the political governance. Providers that are managed efficiently and are financially sustainable are able to effectively expand services to the non-connected poor and to provide a good quality service; the more efficient a subsidy scheme is managed the more resources can potentially reach the poor.

Alt, J. Klingemann eds. Braeutigam R. Willig ed.

Price Controls, Subsidies, and the Risks of Good Intentions: Crash Course Economics #20

Budds J. Clarke G.

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Cornes R. Esrey S. Estache A. Foster V. Fuest V. Hutton G. Izaguirre A. Jalan J. Johnson C. Kessides I. Krause M. Maldonado M. Informes de base. Neubert S. Noll R. Scharpf F. Shirley M.


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Smith W. Spiller P. Spiller eds. Recommendation Government and nongovernment payers and providers should expand policies aiming to improve the quality of care, improve population health, and control health care costs 35 to include a specific focus on improving population health for the most vulnerable and underserved.

The National Academies Committee on Accounting for Socioeconomic Status in Medicare Payment Programs has shown in its reports NASEM, a , b , c , e that value-based payment systems that do not account for social risk factors can have unintended adverse consequences, including providers and health plans avoiding low-income patients and underpayment to providers disproportionately serving socially at-risk populations such as safety net providers.

These unintended consequences could in turn lead to deterioration in the quality of health care for socially at-risk populations and widening health disparities.


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  5. That committee has stated that reducing disparities in access, quality, and outcomes is one of four policy goals in accounting for social risk factors NASEM, a , b , c , e , and its reports suggest that reforms to value-based payment programs that compensate providers fairly and increase fairness and accuracy in. The criminal justice system plays an important role in shaping health equity through multiple mechanisms.

    The first, which is conceptually straightforward, includes the health care screening and treatment services that the system provides to adult and juvenile prisoners and probationers. The second is more complex and far-ranging and includes the set of policies that determine if an individual becomes involved in the justice system, for how long, whether or not alternative sanctions will be offered, and how individuals will reenter the community after incarceration.

    These policies have long-term implications for education completion, employment, and income—all of which in turn affect health. Because the justice-involved population is disproportionately people of color and disproportionately comprises other vulnerable populations such as persons with mental illness, criminal justice policies have important implications for health equity. The current era of mass incarceration can be understood as a powerful policy intervention in the lives of the poor and people of color Pettit and Western, Indeed, criminal justice policy and practice disproportionately affect minorities in a number of ways, and there is a large racial disproportionality at most stages of the criminal justice system for both adults and juveniles Harris et al.

    Many scholars have remarked that federal drug policies have targeted racial and ethnic minorities and especially African Americans and their communities. The differences in mandatory minimum sentencing guidelines for crack cocaine, which has been associated with poor and minority users, versus powder cocaine, whose users tend to be white Palamar et al. Although the two substances are virtually identical on a molecular level, the Anti-Drug Abuse Act of stipulated a weight ratio for powder versus crack cocaine when determining mandatory minimum sentences for.