Water Privatization

🏙️ Municipal water privatization is one of Professor Hanke's most consistent policy positions — spanning his academic career, Reagan Administration service, and ongoing research. He argues that private ownership and market competition improve efficiency, reduce waste, and expand access compared to government-run water utilities.

The Economic Case for Water Privatization

Professor Hanke's argument for water privatization rests on fundamental economic principles:

• Price signals: Government utilities typically price water below cost, creating overconsumption and under-investment. Private operators face incentives to price water to reflect true scarcity and infrastructure costs.
• Efficiency: Competition and the profit motive drive private operators to reduce waste, detect leaks, and modernize infrastructure.
• Investment: Private firms can access capital markets more readily than municipal governments constrained by debt limits.
• Accountability: Private operators face contractual performance requirements; public utilities face weaker accountability mechanisms.

Privatization Across Hanke's Career

Hanke has produced eight books and numerous articles dealing with the privatization of public-sector resources. Water privatization is the original and most technically grounded example in his privatization work, drawing directly from his PhD research and early academic career.

Selected books on privatization include:

• Prospects for Privatization (ed., 1987)
• Privatization and Development (ed., 1987)

Hanke also authored the "Privatization" entry in the prestigious New Palgrave Dictionary of Economics (1987) — the standard reference work in the profession.

Reagan Administration: Water Privatization Policy

During his 1981-82 tenure as Senior Economist on President Reagan's Council of Economic Advisers, Hanke worked to embed market-based principles into federal water policy. His rewriting of the Principles and Guidelines for Water and Land Related Resources Implementation Studies incorporated:

1. Stricter benefit-cost requirements that forced more honest accounting of project costs
2. Market pricing principles that challenged the practice of subsidizing water below its economic value
3. Private sector participation frameworks that opened the door to private investment in water infrastructure

Kenya and Big Game Economics (1972)

In 1972, Professor Hanke served as a research associate at the National Museums of Kenya, working with legendary anthropologist and paleontologist Richard Leakey on the economics of big game cropping and the privatization of big game reserves to combat poaching.

This unconventional application of privatization theory illustrates the breadth of Hanke's economic thinking: the same logic that applies to municipal water — that private ownership creates incentives to conserve and manage resources sustainably — applies equally to wildlife reserves. Poaching, in Hanke's analysis, is fundamentally a property rights problem: when no one owns the animals, no one has an incentive to protect them.

🦁 Property Rights Insight: "When wildlife has no owner, it has no protector. Privatization of game reserves aligns the incentives of landowners with conservation outcomes — the same principle that applies to any scarce resource, including water." — Hanke

Advisory Work: Global Water Companies

Hanke's practical engagement with private water companies gives his theoretical arguments real-world grounding:

Current Research: JHU Global Water Program

Professor Hanke remains a member of the Johns Hopkins University Global Water Program, where municipal water privatization remains a central focus. His current work examines:

• Models for private concession arrangements
• Performance metrics for water utility privatization outcomes
• Policy frameworks for developing country water systems

Related Topics

• Water Resource Economics
• Free Market Economics
• Ideas & Research