Privatization as institutional choice

A model based upon the common concept of rent-seeking behavior avoids an exclusive focus on the pecuniary motive in private institutions and the power motive in public institutions. Using this model, the case for privatization ranges from very strong to unpersuasive, with some fascinating intermediate cases. Where purchases are frequent, information is abundant, costs of a bad decision are small, externalities are minimal, and competition is the norm, privatization ought to be pursued. At the other extreme, in situations where externalities and collective interests abound, natural monopolies are dominant, distributional goals are important, or debate and experience will alter preferences, governmental determination of service levels and public provision should continue. Intermediate situations such as those involving education, health, and some aspects of enterprise development provide the most interesting and hotly debated areas. These intermediate situations have both private and collective characteristics, choices are made infrequently with little information, have monumental consequences, distributional considerations are critical, and public debate about the level and type of service substantially affects individual behavior.