Privatisation of public services and the natural monopoly

This involves three interrelated strands pricing, access and quality of service. There are several ways of regulating a privatized industry with strong monopoly elements.

Incentive regulation refers to the design of incentives to ensure that producers keep prices and costs as low as possible. If X is set too low, the firm will make excessively high profit and regulator will lose face.

But if privatisation occurs without competition, then, as a nation, we only get a fraction of the benefit. In deciding on the right value of X, the regulator may have to be guided by the expert, with the inside knowledge of the firm.

However, the Roman Empire also created state-owned enterprises —for example, much of the grain was eventually produced on estates owned by the Emperor. By themselves, both forms of ownership are imperfect. Private sector involvement in Medicare and Medicaid is not limited to MCOs; private doctors, hospitals, nursing homes provide medical care; reimbursement claims are processed by private intermediaries; and peer review organizations, utilization review committees and accreditation organizations like JCAHO are staffed by private medical personnel.

Some regulators use a formula related to rate return on capital which the monopoly would not be permitted to exceed. If competition is not possible then the privatised business needs to be regulated so that it cannot exploit its market power. However, this is a one-off benefit.

Former communist countries have been profoundly affected by the privatisation of their economies. If a state government privatises a monopoly port or airport, then it will get more money than if it establishes a competitive market.

No less important was technological change. Alternatively the regulator can insist on a price that allows the firm to just break-even.

Advantages and problems of privatisation

Privatisation involves selling state-owned assets to the private sector. EMOs are usually for-profit and manage charter schools and sometimes traditional public schools as well.

To calculate the net financial gain to the state, we must compare the PV Present Value of the stream of revenue expected from the firm had it remained in state ownership with the proceeds from the sale. Essay on the Effects of Privatisation: Agency for International Development, the German Treuhandand other governmental and nongovernmental organizations.

Disadvantages of privatisation 1. Economies of scale With natural monopolies, economies of scale are very significant so that minimum efficient scale is not reached until the firm has become very large in relation to the total size of the market. By contrast, the Ming dynasty in China began once more to practice privatization, especially with regards to their manufacturing industries.

When such is the case, one solution is to remove the restrictions on entry, subject to the new entrants satisfying some basic minimum operating criteria such as prudential reserve ratios, safety provisions, and so on.

Public interest There are many industries which perform an important public service, e. There are two ways to do this. Deregulation has been applied to many industries in addition to those controlled by the state monopolies.

Do regulators make the privatised firms meet certain standards of service and keep prices low? Not surprisingly there has been frequent disputes over the definition and measurement of rates of return in these cases.

The underlying assumption is that costs are not given but are influenced by the incentives set by the regulatory authorities. The last one must have an income distribution effects.

Arguments for and against privatisation Potential benefits of privatisation 1.

In the case of natural monopolies, trying to increase competition by encouraging new entrants into the market creates a potential loss of efficiency. Businesses move into and out of government ownership over time.Download Citation on ResearchGate | Privatization, Public Ownership and the Regulation of Natural Monopoly.

| Part 1 Regulatory failures: regulation by Parliament regulation by Commission the failure of. Natural monopoly sector privatization is a relatively new and still-evolving field, and it would be premature to venture definitive conclusions as to the “best practice” privatization and regulation models for natural monopolies.

Nevertheless, we will offer some recommendations concerning natural monopoly privatization and regulation.


Essay on Privatization: Meaning, Reasons and Effects! of them has been a disillusion with the capacity of the nationalized industries to deliver effective and efficient services to the public and to achieve social goals they were set up to attain.

By unbundling the industry into its different potentially competitive and natural monopoly. Recent evidence on demand elasticity and efficiency differences suggests that privatisation would be likely to reduce welfare even according to Bradburd's approach.

‘Privatization of Natural Monopoly Public Enterprises: The Regulation Issue SpannRobert M.

Essay on Privatization: Meaning, Reasons and Effects

() ‘Public Versus Private Provision of Public Services’, pp. 71–89 in. Privatization of Natural Monopoly Public Enterprises: The Regulation Issue RALPH BRADBURD* ly pfivatizing their public enterprise natural monopolies that provide services corre- In analyzing the effects of natural monopoly privatization and deregulation, it will.

Privatization of Natural Monopoly Public Enterprises The Regulation Issue Ralph Bradburd On balance, it is no. obvious that developing countries will public enterprise natural monopolies that produce services corresponding to those of regulated "utilities" in the United States: electricity generation, transmission and distribution.

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Privatisation of public services and the natural monopoly
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