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Several studies have compared the efficiency of publicly and privately owned water utilities and reached conflicting conclusions on the impact of ownership on efficiency. This article provides further evidence by estimating a stochastic cost frontier for a sample of Asian and Pacific regional water companies. The results show that efficiency is not significantly different in private companies than in public ones.Policymakers in developing countries, eager to resolve the decade-long debate on the gains from privatization of water utilities, are increasingly interested in assessments of the efficiency of public and private water utilities. Most early studies focused on the performance of public and private providers in the United States. Crain and Zardkoohi (1978), estimating a cost function derived from a generalised Cobb-Douglas production function with a dummy variable for ownership, found that publicly owned water utilities in the United States had higher costs than their privately owned counterparts. Feigenbaum and Teeples (1984) used a translog approximation and concluded that they could not reject the hypothesis (at the 5 percent significance level) that the parameters were identical for government and private operation. Byrnes, Grosskopf, and Hayes (1986) measured efficiency directly in terms of a production function and found no evidence that publicly owned utilities are more wasteful or operated with more slack than privately owned utilities. Fox and Hofler (1986) estimated the extent and cost of technical and allocative inefficiency and found no statistical difference in inefficiency for public and private firms, although they did find allocative differences. Overall, these studies leave the impression that there is no convincing evidence of a systematic superiority of one form of ownership over another.

We study a recent recruitment drive for public sector positions in Mexico. Different salaries were announced randomly across recruitment sites, and job offers were subsequently randomized. Screening relied on exams designed to measure applicants' intellectual ability, personality, and motivation. This allows the first experimental estimates of (i) the role of financial incentives in attracting a larger and more qualified pool of applicants, (ii) the elasticity of the labor supply facing the employer, and (iii) the role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies, as well as the role of wages in helping fill positions in less attractive municipalities. A theoretical model guides each stage of the empirical inquiry. We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity towards public sector work -i.e., we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities.

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