The effects of governance modes on affordability,
sustainability and the efficiency of water services in three
transition countries
Managed by the Metropolitan Research Institute
Team:
Armenia: Lilit Melikyan, Armenia, associate consultant/researcher
Hungary: József Hegedüs, Andrea Tönkő (MRI), Mária Papp and
Gábor Péteri, consultants
Romania: Adriana Pienaru and Afrodita Popa (A&A Expert Advice)
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Research policy problem
Transition from a centrally-planned society
towards a market-based, democratic
society – new governance structure
 How does the governance structure
influence the operation of different sectors
(for example, of the water sector)?
 Are there any causal relations between the
governance model and the social/economic
output of the sector?

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Governance matters!!!
1. Definitions of governance:
• „good governance” (WB approach)
• „power” structure (institutional economics)
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Unbundling: step 1 (privatization
and decentralization)
Governance: Robust
typology
Outcomes
· Affordability
· Sustainability
· Service quality
Institutional economics: Unbundling the water
sector Step 1.
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Unbundling: step 2 (governance
factors independently from the
robust model)
Incentives/Motives
Outcomes
Type of
Governance
Accountability
(Robust
typology)
·
·
·
Affordability
Sustainability
Service quality
Rule of Law
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Unbundling step 3: external factors
(“soft” exogenous variables)
Incentives/Motives
Legal framework
Intergovernmental
fiscal relations
International
Agencies
(globalization)
Outcomes
Type of
Governance
Accountability
(Robust
typology)
·
·
·
Affordability
Sustainability
Service quality
Rule of Law
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Unbundling: step 4 – external
factors (hard exogenous variables)
Economic Development
Incentives/Motives
Legal framework
Intergovernmental
fiscal relations
International
Agencies
(globalization)
Type of
Governance
Outcomes
Accountability
(Robust
typology)
·
·
·
Technological factors
Affordability
Sustainability
Service quality
Geographical factors
Rule of Law
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Transaction cost replaced the outcome
indicators – the final analytical model
Level of service provider
Soft external factors
Economic Development
Incentives/Motives
Legal framework
Intergovernmental
fiscal relations
International
Agencies
(globalization)
Type of
Governance
Accountability
(Robust
typology)
Transaction cost
· Economic
(slack
economy)
· Social
(externalities)
Technological factors
Geographical factors
Rule of Law
Institutional arrangment of
service provider
Hard external factors
Methodology: case studies, limited number of cases
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Main hyphotheses



Hypothesis 1. The governance type, according to the
“robust” model based on decentralization and
privatization, does not influence the transaction cost
in itself.
Hypothesis 2. Changes in the transaction cost
depend on three highlighted governance factors:
incentive structure, accountability relations, and the
rule of law.
Hypothesis 3. There is a very close connection
between the exogenous governance factors
(institutional environment), and the three governance
factors
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“Unbalanced growth” may distort the governance
structure of the water sector and risk long-term
sustainability
Economy and infrastructure
 Balanced and unbalanced growth
theories
 “Reverse” unbalanced growth theory
 Affordability and subsidy programs

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Thank you for your
attention!!!