committed or needed (Estache et al. (2015)) since no government level has an incentive to try hard to address the problem as responsibility for failure is shared.<sup>15</sup> A fourth explanation is related to a lack of credibility of government which increases the risk of renegotiations which expose investors to higher risks than they anticipated. This loss of credibility can be seen in the changes in the risk allocation characteristics of the contracts signed since the early 1990s. Private operators are no longer signing concession contracts as easily as they did then. New contracts are typically management contracts in which the public sector picks up all commercial risks. Even when concession contracts are signed, most large firms in the sector have enough bargaining power to decide who to exclude from service obligations, even when they are subsidized. This is what happened in some of the Argentinean provinces where the operators were willing to cater to the urban users, but managed to exclude rural users or users in secondary cities. This exclusion is rational and based on their assessment of commercial risks associated with some groups of users. More specifically, it is linked to the perception of a limited ability or willingness to pay of some users, associated with low income levels and the pro-cyclicality of risks.<sup>16</sup> This risk is not unrealistic according to a survey conducted by Hulland et al. (2015); relying on a meta-analysis of studies measuring households’ willingness to pay for cleaner water, they find that it is often less than the cost of providing the service. This also should be factored into the design of regulation.<sup>17</sup>

**_So what?_** Whether the service providers are public or private, the failure to get operators to invest reflects a failure to provide the right incentives to do so or to work with the government to mobilize the resources needed to finance investments.  When the operator is private or public but commercialized, investment does not happen because the return to the financial investment is not guaranteed. When the operator is not even commercialized, investment is usually simply an ad hoc decision reflecting opportunities rather than strategic planning.

Contracts can be used to deal with investment obligations. However, the fact that the operators will usually have more information on the business costs of the sector, as well as on its environmental impacts, than the regulator or the public officials in Ministries makes it quite hard to implement the well-intended push for increasing coverage where large shares of the population still do not have access to piped water. Governments and/or regulators can indeed try to deal coverage concerns through service obligations and specific demands on the timing of these investments built into the

> 15 Lipscomb and Mulbarak (2017) find similar results.

> 16 Pro-cyclicality of risks results from the fact that in good economic times, poor consumers have a better chance of making enough income to pay their bills while in bad economic times, when unemployment is higher, their non-payment of bills is more common.

> 17 Additional insights on the relevance of the willingness to pay are provided by Null et al. (2012).

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