Local government control and efficiency of the water industry : an empirical analysis of water suppliers in East Germany

The paper deals with the effects of local governments’ interference with business affairs of publicly owned utilities. A partial model is presented to illustrate the consequences of democratic controlʺ for the public managers’ effort and the efficiency of local public production. To check the theoretical results empirically, a two-stage data envelopment analysis (DEA) is carried out for a sample of East German water suppliers. The organisational form is used as a measure for the degree of municipal control. The results of the OLS- and Tobit regression indicate an efficiency-enhancing effect of organisational forms with less distinctive control options for local politicians. -- efficiency ; water industry ; local governments ; data envelopment analysis