Rati Avaliani

ECON 232
Response Paper 3
04/08/2018
Water for Life: The Impact of the Privatization of Water Services on Child Mortality
by Sebastian Galiani, Paul Gertler, and Ernesto Schargrodsky

The paper evaluates privatization of water services in Argentina. By privatizing

the water service provider companies, the Argentinian government targeted several
problems, but child mortality is the topic of our interest.
The study focused on children under age 5 because they are particularly
vulnerable to water-related diseases; and because water-related diseases can be easily
prevented through access to better hygiene, better sanitation, and clean drinking water.
The treatment group for the study consisted of municipalities where water-services were
privatized and the control group – municipalities where water-services were not
privatized. The main objective of the study was to identify the average effect of
privatization on child mortality rates, i.e., they wanted to compare mortality rates when
water services are privately provided to the mortality rates when services are publicly
provided in the treatment areas at the same point in time. Since, this is physically
impossible, the authors decided to mimic the RCT under reasonable conditions. One
concern is that there might be intrinsic differences between municipalities that chose to
privatize compared to ones that chose to not privatize. Because of this, difference-in-
differences approach is used for the study. This approach compares the change in
outcomes in the treatment group before and after the intervention to the change in
outcomes in the control group. This approach controls for observed and unobserved time-
invariant municipality characteristics that might have been correlated with the water
privatization decision and morality rates.
The main regression model for the study is as follows:
yit = adIit + bxit + Lt + mi + eit ,

where y is the mortality rate in municipality, dI is an indicator variable the that equals
one if municipality’s water services are privately owned and zero otherwise, x is a vector
of control variables, m is a fixed effect unique to a municipality, and L is a time effect
common to all municipalities. Is this equation, a is the estimate of the effect of
privatization of water services on mortality.

The main assumption for the model is that the change in mortality in control
municipalities is an unbiased estimate of the counterfactual. The authors test this by
comparing the time-varying characteristics trends in the control and treatment
municipalities. If these trends turned out to be the same in the preintervention period,
then they would draw on the conclusion that they would have been the same in the period
after the intervention if the treated municipalities were not privatized. The authors finally
tested this by slightly modifying the main equation, by excluding the privatization
dummy variable and including separate dummy variables for each year. They estimated
that the mortality rates in the treatment and control municipalities had similar time trends
in the preintervention period.

The sample for the study was the whole population of Argentina; time period for
the study was from year 1990 to year 2000. The data for the study was drawn from
information contained in statistics registries compiled by the Argentine Ministry of
Health. The data included the 165,542 child deaths that occurred in this period.

By looking at table 3, column 1, we find that the privatization of water services is

associated with a 0.334 decrease in the mortality rate, which is a 5.3% decrease of the
baseline mortality rate. Table 4 shows the impact of privatization of water services on
child mortality by cause of death. In the table we observe a statistically significant effect
on mortality from infectious and parasitic diseases and perinatal deaths. The estimated
effect is a 18.2% decrease in mortality from parasitic and infectious diseases and a 11.5%
decrease in perinatal deaths.