Consumer complaints as regulatory signals: Evidence from water services in Metropolitan Lima

In regulated monopoly services, consumers lack effective exit options, making complaint systems a central mechanism for expressing dissatisfaction and generating regulatory information about service performance. However, complaint rates are not direct or unbiased indicators of service failures, as the decision to complain involves informational, procedural, and behavioral costs, reflecting both service problems and heterogeneous access barriers. Because administrative data record filed complaints rather than adjudicated outcomes, complaint rates are interpreted as noisy signals of perceived billing anomalies rather than direct measures of confirmed service failures, firm misconduct, or regulatory noncompliance. This paper reinterprets billing-related complaints as endogenous regulatory signals in essential public services. We develop a microeconomic framework in which households decide whether to complain when facing an atypical bill under uncertainty about its origin—whether it reflects a firm billing error or household-specific factors. The model’s predictions are tested using sector-month administrative data from Sedapal, the public water utility serving Metropolitan Lima (Peru), covering January 2022–June 2023. We estimate a dynamic panel model (System GMM) to identify persistence in complaint behavior and its response to unanticipated tariff shocks. We find strong persistence in complaint rates and a significant response to unexpected tariff increases. These patterns suggest structural frictions in service provision or communication and a critical role for tariff transparency. Overall, the results imply that regulators should strengthen tariff communication and incorporate complaint data into monitoring systems as screening and triage indicators, rather than as mechanical evidence of confirmed billing errors or firm misconduct.