This dissertation investigates the hypothesis that participation can overcome trade-offs in equity and efficiency. Literature within the field of economics and sociology has argued for tradeoffs in outcomes of allocative efficiency and equity and institutional efficiency and equity, respectively. Community-based participatory institutions are expected to overcome this tension by introducing institutional accountability and local-level decision making, which serve to enhance technical and allocative efficiency while retaining mechanisms for equitable allocation and empowerment. This research draws on fieldwork from a community-managed water supply program in rural Bahia, Brazil to examine whether outcomes of efficiency and equity are mutually compatible. Findings from the field research indicate that explicit and implicit subsidies to the water supply systems led to outcomes of allocative equity in the sites visited, but that these generated tradeoffs with allocative efficiency. Findings from the research also indicated that the community organizations were relatively efficient in their administrative practices, but that this efficiency came at a cost to equality of membership and voice in the community organization. This suggests that participatory water supply programs generate certain and specific costs, although the findings also suggest additional positive externalities associated with participation.