Evaluating the Impact of Reducing Information Asymmetry in the Regulation of the Water and Sanitation Sector

Public policies governing utilities, typically characterized as natural monopolies, are challenged by information asymmetry between regulators and regulated firms. This asymmetry enables utilities to exploit informational advantages to increase profits, often at the expense of consumers through inflated prices. Although the academic literature acknowledges the significance of this issue, empirical evidence remains scarce and largely theoretical, typically relying on comparisons between real markets and hypothetical scenarios of perfect information. This study addresses this gap by empirically evaluating the impact of an information asymmetry reduction policy on consumer prices in a natural monopoly context. Specifically, it examines the Chilean water and sanitation sector, where the regulatory agency implemented a policy involving the automated, massive validation of utilities' infrastructure data. Employing a Difference-in-Differences approach using a “Two-Way Fixed Effects” estimator, the analysis reveals that the policy led to a 3.2% reduction in prices paid by consumers. These findings underscore the value of data verification mechanisms in regulatory frameworks and offer evidence-based insights for policymakers aiming to enhance regulatory effectiveness in utility sectors.