Privatization of natural monopoly public enterprises: the regulation issue

Ralph Bradburd

No 864, Policy Research Working Paper Series from The World Bank

Abstract: Many developing countries are considering the privatization of public enterprise natural monopolies. Such as monopolies in charge of electricity, natural gas, water and sewer, and telephone service. The author tries to answer two questions: (i) how great would the efficiency losses be, if any, if a public natural monopoly were privatized and allowed to function as an unregulated entity? and (ii) how much could performance be expected to improve if the privatized natural monopoly operated as a regular firm? The author argues that the deadweight losses from monopoly pricing by unregulated privatized natural monopolies are likely to be modest and may well be outweighed by improvements in technical efficiency. He also argues that regulation is not costless and may well foster static and dynamic efficiency losses greater than the deadweight monopoly losses it is intended to prevent. Also, the reduction of allocative inefficiency is only one of several objectives of regulation. If the case for regulation on efficiency is weak, then much greater attention must be paid to how these other objectives can best be achieved. Historically, achieving distributional equity has been an important objective of regulation. We have very little systematic knowledge about the actual distributional consequences of privatization and deregulation, so more research is needed.

Keywords: Environmental Economics&Policies; Access to Markets; Administrative&Regulatory Law; Markets and Market Access; Economic Theory&Research (search for similar items in EconPapers)
Date: 1992-04-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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