This dissertation sheds new light upon the complex interplay of factors (social, political and economic) that constrain the enabling environment for water sector reform and private sector participation (PSP) by analysing of the process of policy reform and the nature of stakeholder engagement in the provision of water and sanitation. Findings are based on an in depth case study of the La Paz/El Alto concession arrangement from 1997–2005, when the contract was abruptly
terminated. The analysis is encompassed within the New Institutional Economics conceptual framework as it provides a holistic application of economic analysis on the role of incentives, institutions and behaviour, providing a common link in understanding between traditional economists and other social scientists, allowing for greater reflection as to the ways socio-political, cultural and historical contexts determine the behaviour of those involved in the water reform process. The delicate nature of the water sector provides evidence of how under certain institutional constraints, and where optimum accumulation of information is virtually impossible, human behaviour can become motivated by a volatile set of preferences, making it particularly difficult for policy-makers to manage the reform process and accurately predict reform outcomes. Research findings conclude that the difficulties policy-makers faced in reforming the water sector and introducing PSP in the case of La Paz/El Alto, stemmed from three fundamental factors: (i) The reform process did not consider how race-based socio-political and economic hierarchies, endemic in Bolivian history and culture, would influence intended outcomes; (ii) stakeholders underestimated the transaction costs involved in the process of reform and PPP
implementation due to information and bargaining asymmetries; (iii) systemic barriers, beyond the control of stakeholders involved, constrained the space for partnership innovation and flexibility in the provision of water and sanitation, debilitating the possibilities for future collaboration between civil society, government and the private sector
