Supervisors: Professor Toomas Haldma (Ph.D), Tartu Ülikool
Dotsent Giuseppe Grossi (Ph.D), Kristianstadi Ülikool, Rootsi
Opponents: Professor Salme Näsi (Ph.D), Tampere Ülikool, Soome
Professor Loreta Valančienė (Ph.D), Kaunase Tehnoloogia Ülikool, Leedu
Performance improvement in public services is recognised as a goal for many governments, and has resulted in a variety of public governance reform initiatives. Nevertheless, current knowledge about how governance arrangements influence the performance of public services is scarce and fragmented. The present dissertation aims to provide an in-depth understanding of how local governments set up and use governance mechanisms for public services provision and how the different governance patterns determine financial and non-financial performance in public services. This study seeks to contribute to the scientific debate on governance-performance relationships through research conducted in the Estonian water sector. The first part of the empirical research comprises a quantitative analysis of the influence of ownership on the technical efficiency of Estonian water companies. The analysis reveals that none of the given ownership forms (public, private, mixed public-private) can be associated with a greater or lower efficiency levels. The second part of the empirical research - a comparative case study research - shows that the observed ownership structures had a different influence on the financial and non-financial performance of the water companies, which depending on the applied governance mechanisms could be either negative or positive. Private ownership of a water company could lead to relatively greater performance, if the rights (e.g. tariffs) and obligations (e.g. quality requirements, accountability) are clearly fixed by strict regulatory contracts. Water services provision by a privately owned company without a clear ex ante written set of rules is likely to cause performance eroding agency problems between the local government and the company. Moreover, public ownership, which is often considered to be old-fashioned and ineffective, could lead to good performance even without strong contractual arrangements when the water company is tied with the local government on a professional basis via the supervisory board. The empirical findings of this study suggest that mere privatisation itself is not the key to solving performance problems in the water sector. Policymakers, regulators and managers of water companies involved in water services provision should consider the setup and use of regulatory contracts and corporate boards thoroughly in order to be effective in achieving the targeted financial and non-financial performance objectives.