When local governments turn to private companies to manage vital utilities like water, energy, and public health, the poorest customers often lose. By law, private utilities can set their rates based directly on the cost of their investments, which means they can charge a lot, with little concern for how that impacts low-income consumers. Unlike public utilities, private utilities do not serve constituency—they serve investors.

But according to a forthcoming paper in the American Journal of Political Science, the public utility model has some drawbacks, too. Its reliance on public support can compromise its ability to make crucial infrastructure upgrades. As a result of poor funding, public utilities can also fail to meet federal public regulations. And yet regulators are more lenient with them than with private utilities, since harsh punishment only further hurts the public. ... ”People are sensitive to water rate increases in the way they are to tax increases,” says Manuel Teodoro, an associate professor of political science at Texas A&M, and one of the authors of the new paper. “In local politics, it becomes a huge issue.”

Teodoro and co-author David M. Konisky, an associate professor of public affairs at Indiana University, argue that because rate hikes are so politically sticky, it’s harder for public utilities to generate the revenue required for crucial infrastructure updates or even simple maintenance. By contrast, private utilities have no problem setting high rates and building new pipes and plants. In fact, they are incentivized to raise rates, because that’s how they turn a profit. “Investor-owned utilities want more and more stable revenue,” says Teodoro.

That means resource-challenged public utilities can be more likely to fail to meet federal environmental and health regulations than resource-rich private utilities. Unlike public utilities, private companies also have competitors, which also incentivizes them to staff up, build out and comply with federal standards.