Public ownership, privatisation and regulation: social welfare counterfactuals for British Telecom

Massimo Florio and Riccardo Puglisi

No unimi-1017, UNIMI - Research Papers in Economics, Business, and Statistics from Universitá degli Studi di Milano

Abstract: Is privatization per se socially beneficial? Or do those benefits depend on the subsequent changes in the regulatory regime? In this paper, building on Vogelsang, Jones and Tandon (1994), we answer these questions by analyzing three different counterfactuals about British Telecom privatization and regulation. In the factual scenario, the British government decided to privatize British Telecom, and at the same time to establish an independent agency (OFTEL), which was to impose a price cap mechanism on BT services, in those market segments in which competition was unfeasible or limited. Our research strategy is to follow a simple ceteris paribus approach, and to change in each counterfactual only one aspect of the institutional setup. The analysis suggests that the change in ownership from public to private had negative welfare effects, under reasonable assumptions about the productive efficiency gains arising from it. Moreover, the paper studies the relationship between productive and allocative efficiency, by making hypotheses about the price changes induced by the new regulatory regime

Keywords: privatization; regulation; British Telecom; welfare analysis (search for similar items in EconPapers)
Date: 2006-01-25
Note: oai:cdlib1:unimi-1017
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