A yardstick competition model for Portuguese water and sewerage services regulation

Water and sewerage services present relevant market failures, demanding a State visible hand for their correction. Their intensity degree may require the use of incentive regulation. Furthermore, since the water and sewerage services remain, almost always, the responsibility of the municipalities, the high number of players involved support the adoption of yardstick competition. This paper provides an overview of this regulatory methodology and discusses its appropriateness to the water sector in Portugal. It examines two approaches of yardstick competition and concludes that, in the short-term, only the comparison and public debate of performance results would be effective and credible.