Regional consortia and transaction costs for sanitation services in Brazil

Studies on public cooperation usually focus on its impact on the service costs experienced by service providers. However, engagement in public cooperation in service provision often seeks other outcomes, like service coverage (measured by the population served) rather than simply minimizing service expenditure. Moreover, public cooperation by local governments, as either 'providers' or owners, generates transaction costs arising from negotiation, monitoring, agency costs and the enforcement of cooperative agreements. However, to date, little empirical effort has been directed at determining the impact of transaction costs on service provision owners and service outcomes. This paper addresses this gap in the empirical literature by examining the relationship between cooperative agreements between Brazilian municipalities for water and wastewater provision and service coverage in the light of transaction costs. We find that transaction costs are higher for cooperative providers due primarily to low service coverage levels, especially in sewage services that demand high investment in assets with high specificity. However, lower expenditures may occur after initial up-front investment.