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Knowing The Field For Water Service Regulation At Local Level: Actors, Information, Incentives

Congress: 2015
Author(s): Franco Becchis (Torino, Italy), Elisa Vanin, Daniele Russolillo
Turin School of Local Regulation1, Foundation for the Environment / Turin School of Local Regulation2

Keyword(s): Sub-theme 7: Global challenges for water governance,
The design of institutional mechanisms and individual incentive schemes is a crucial task to regulate and manage municipal services, included water and sanitation services: at local level relations are so intertwined that it becomes difficult to enforce the hardest part of regulation (franchising, investments, tariffs and prices, rent control, punishment). Indeed, when designing policies and investing in public services and infrastructures, an important issue to consider is the tangled web of complex, difficult and asymmetric relationships among actors. The nature of these actors (players), their information endowment and the information flow amongst them, the incentives that drive their choices, the types of relationships established, are all features that influence the outcome of policies and projects, their success or failure. This is why a preliminary field analysis appears to be necessary before drawing any new policy or to design any new mechanism. The paper intends to present FIELD (Framework of Incentives to Empower Local Decision-makers), a multidisciplinary methodology for the analysis of local actors, incentives, information endowment and transfer, relationship and pressures among actors. Understanding this scenario can help to understand some reasons behind the success or failure of local services -- included water services - infrastructures and regulation.
The rationale of the instrument is that people as individuals and people in organizations behave following incentives and use information endowment in their relationship with other to pursue goals. Information endowment is a key part in the regulatory game; without reducing the complex social interaction to a simple sequence of strategic moves among robots/actors, it can be useful to design the main feature of regulatory relationship at local level detailing different typologies of actors, incentives, information, relationship to anticipate unintentional consequences, breaking points, misaligned incentives or counterintuitive outcomes, all factors that can cause policies/investments' failures.
FIELD aims to narrow the gap between the academic research and strategic decision-making process in local public service governance helping policy makers, regulators, project developers, financing institutions, and other stakeholders to better understand the playing field of local regulation. Its fallouts can be ex-ante (for "to be implemented" actions), in progress or ex-post (screening the past for better future interventions).
The reason for looking at actors, incentives and information when studying local contexts for regulatory purposes are deeply rooted in a domain of interdisciplinary knowledge and literature, mainly from Game Theory [1,2] to Social Network Analysis [3,4], Political Economy Analysis [5] passing through sociology [6], social physics [7] and anthropology.

The methodology is based on an ad-hoc survey for experts, invited to provide insights and data for a specific sector in a certain local context. In the three case studies developed in the water service sector, one expert per case study has been involved. As known, there can be a trade-off between knowledge and independence: being strictly embedded in a particular context provides comparative advantages in extracting sensible information but at the same time imply the emergence of personal incentives that could hinder a truth-revealing behavior in answering the questions. That is why the authors are testing also other methodology of data collection, e.g. by creating focus groups involving a broader number of experts with different points of view. This has been tested in another public service so far (district heating) but some insights on this method are provided in the paper.
Concerning the structure of the survey, information is collected through a specific matrix. Firstly, the most relevant players (those who have real influence) are analyzed. It is possible to identify more than one player for each category. Secondly, for each player identified the incentives that drive their choices are categorized, making a distinction between institutional incentives (directly linked to their mission or mentioned in the statute or in other institutional act) and shadow / improper incentives and ranking them according to their priority. Third, relations between the players are identified. Both institutional relations (established by law, de jure) and real relations (de facto) are taken into account. Finally, the information endowment of each player is explored as well as the nature of information exchange. Indeed, one of the most relevant domains in local public service regulation is about information flows and information asymmetries, affecting both the regulator-incumbent and the consumer-incumbent relationships.

The paper presents the preliminary results of the application of FIELD methodology to three specific case studies in the water and sanitation sector: one city in Asia (Bangalore) and two cities in South-Eastern Europe (Belgrade and Sofia). Results about the players identified in the sample cities analyzed, on the incentives that drive their decisions and on the types of relations that link them are provided. Authors discuss the results and offer some comparison between the three case studies.

The methodology designed and the matrix developed, once tested in the first three pilot capital cities in the water sector proved to be a useful and usable tool to describe the framework of local players, their incentives and relationships. The first results collected allow to enrich the debate on local constraints, instruments and goals of regulation and to provide some elements that, in future analysis, might support the design of institutional mechanisms and individual incentive schemes. 1. D. Baron and R. Myerson, "Regulating a monopolist with unwkown costs," Econometrica, no. 50, pp. 911-930, 1982.
2. J. Green, J.J. Laffont, Incentives in Public Decision Making, North-Holland, Amsterdam, 1979.
3. Carrington, Horizontal Co-optation through Corporate Interlocks, Ph.D. thesis, Department of Sociology, University of Toronto, 1981.
4. R.S. Burt, Corporate profits and cooptation: networks of markets constraints and directorate ties in the American Economy, Academic Press, New York, 1983.
5. C. Mcloughlin, Topic guide on Political Economy Analysis, Governance and Social Development Resource Centre, University of Birmingham, 2012.
6. E. Goffman, The Presentation of Self in Everyday Life, New York: Doubleday Anchor, 1959.
7. A. Pentland, Social Physics: How Good Ideas Spread-The Lessons from a New Science, The Penguin Press, New York, 2014.
2011 IWRA - International Water Resources Association - - Admin