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Rules For Beneficial Privatization: Practical Implications Of Economic Analysis

Author

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  • BAUMOL, WILLIAM J.

    (Director, C.V. Starr Center for Applied Economics,New York University)

Abstract

In market economies, privatization of larger enterprises has been followed by regulation to prevent the firm from exercising market power and to enable competitors to enter the market and survive. Often, the regulators’ rules have been poorly designed, raising costs, indirectly impeding competition and removing incentives for innovation and productivity growth. Analysis of regulatory experience in the US and elsewhere enabled economists to devise rules that can serve the regulators’ goals more effectively -- rules being adopted in a number of countries. This paper explains the nature of the regulatory issues and the associated problems. It also describes the economists’ proposed regulatory rules, particularly the price cap approach to prevention of monopoly profits while preserving incentives for efficiency and innovation, and the parity pricing rule for access to bottleneck facilities, that is, to facilities owned by a single firm without which no competitor can operate successfully.

Suggested Citation

  • Baumol, William J., 1996. "Rules For Beneficial Privatization: Practical Implications Of Economic Analysis," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 3, pages 1-32.
  • Handle: RePEc:ris:isecst:0102
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    Cited by:

    1. Masudul Alam Choudhury, 2000. "Regulation in the Islamic Political Economy: Comparative Perspectives تدخل الدولة في الاقتصاد السياسي الإسلامي: وجهات نظر مقارنة," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 12(1), pages 21-51, January.
    2. Amin, Sakib & Jamasb, Tooraj & Nepal, Rabindra, 2021. "Regulatory reform and the relative efficacy of government versus private investment on energy consumption in South Asia," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 421-433.
    3. Nepal, Rabindra & Jamasb, Tooraj, 2012. "Reforming small electricity systems under political instability: The case of Nepal," Energy Policy, Elsevier, vol. 40(C), pages 242-251.
    4. A. R. Kemal, 2002. "Regulatory Framework in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 319-332.
    5. A.R. Kemal, 1996. "Why Regulate a Privatised Firm?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 35(4), pages 649-656.

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