Institutions and Development

Institutions and Development

Advances in New Institutional Analysis series

Mary M. Shirley

A landmark contribution to our understanding of economic development. This significant book argues that fundamental changes in deeply rooted institutions do not happen because of outsiders’ money, advice, pressures, or even physical force; which explains why foreign aid has not, and can not, improve institutions. The impetus for changing institutions must come from within a society, and the author shows how groups of local scholars contribute to institutional change and development when the political opportunity presents itself.

Chapter 6: Institutions and the Reform of Urban Water Systems

Mary M. Shirley

Subjects: development studies, development studies, economics and finance, development economics, institutional economics


Reform of urban water and sanitation systems provides a good illustration of what we see when we unpack the black box of institutions. Water and sanitation are interesting because they are critical goods, yet appallingly mismanaged. Even though clean water and adequate sanitation are essential to prevent disease and premature death, as many as 1 billion people lack access to safe drinking water and 1.2 billion people lack access to adequate sanitation. As a result millions of poor people, mostly children, become ill and die from diseases such as cholera or diarrhea. The UN’s Millennium Development Goal aims to halve the percentage of people without access to safe drinking water and basic sanitation by 2015 at an estimated cost of $101 billion (UN Millennium Project 2005a). Money alone will not achieve the UN Millennium Development Goal, which is evident from the history of water and sanitation reform. Despite large volumes of aid, urban water systems in many poor countries are the epitome of government waste, inefficiency, and underinvestment. Huge volumes of water are lost because of leaks and wasted because of low prices. Paradoxically, those cities depleting their raw water the fastest have some of the lowest prices and largest losses from leaks and waste. For example, in 1992 half of the water produced in Mexico City was unaccounted for, 30 percent was lost to leaks (Haggarty et al. 2002, Table 5.4). Mexico City has pumped so much water from its aquifer that the city has been sinking (Haggarty...

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