NBER Summer Institute - Development of the American Economy Private Water Supply in Nineteenth Century London: Re-assessing the Externalities Nicola Tynan Department of Economics George Mason University Fairfax, VA 22030 703-359-8876 (tel) 703-993-1133 (fax)
[email protected] 25 June 2000 JEL Classification: D62, L95, N73, N83, R11 NBER Summer Institute - Development of the American Economy 2 Abstract Externalities played a major role in nineteenth century debates over private versus government ownership of water works in Britain and the US. Public health reformers argued that private water companies failed to internalize positive health externalities from filtration, wastewater removal, continuous supply and new connections. Evidence from London's experience with privately owned waterworks suggests that public health externalities from a pipe network were lower than critics assumed and were largely internalized by the companies. Negative externality shocks can be traced to rapid population growth, scientific uncertainty, and the institutional difficulties in moving from one sanitation technology to another. NBER Summer Institute - Development of the American Economy 1 1. Introduction Externalities played a primary role in nineteenth century debates over municipal versus private ownership of water works. Critics of private ownership argued that joint-stock companies failed to internalize a number of externalities, particularly the public health benefits of water supply. In many British and U.S. cities, this debate resulted in a switch from private to municipal ownership and control.1 Public health improvements in cities switching from private to public ownership provided ex post support for market failure. London's experience with private water companies throughout the nineteenth century suggests that the relationship between public health and ownership may be more complex than often assumed.