In the German wastewater sector, innovations are often regarded to be the key to both more efficient service provision and reduction of environmental and health-related problems. However, it is unclear what factors foster these innovations. One possible candidate factor is increased competition in this sector and the entry of private service providers. So far, there is no empirical evidence to answer the question of whether private firms are, in fact, more innovative than others. To address this question, we conducted a survey among German firms that provide wastewater services and estimated a structural model to explain firms¿ innovativeness. Our results suggest that firm size improves innovativeness; however, private service providers are not significantly more innovative than providers operated by local governments. We conclude that restructuring the sector to form larger units may foster innovative activities even without any changes in the legal framework.