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Privatization of natural monopoly public enterprises : the regulation issue

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  • Bradburd, Ralph

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.

Suggested Citation

  • Bradburd, Ralph, 1992. "Privatization of natural monopoly public enterprises : the regulation issue," Policy Research Working Paper Series 864, The World Bank.
    • Handle: RePEc:wbk:wbrwps:864
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    References listed on IDEAS

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    1. repec:bla:ecorec:v:62:y:1986:i:177:p:145-62 is not listed on IDEAS
    2. Bradburd, Ralph & Ross, David R., 1991. "Regulation and deregulation in industrial countries : some lessons for LDCs," Policy Research Working Paper Series 699, The World Bank.
    3. Primeaux, Walter J, Jr, 1977. "An Assessment of X-Efficiency Gained through Competition," The Review of Economics and Statistics, MIT Press, vol. 59(1), pages 105-108, February.
    4. Lester D. Taylor, 1975. "The Demand for Electricity: A Survey," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 74-110, Spring.
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    Cited by:

    1. Cook, Paul & Fabella, Raul V., 1997. "The Welfare and Political Economy Dimensions of Private vs State Enterprise," General Discussion Papers 30561, University of Manchester, Institute for Development Policy and Management (IDPM).
    2. Johan WILLNER & Sonja GRÖNBLOM, 2011. "Reforming a network industry: consequences for cost efficiency and welfare," Departmental Working Papers 2011-33, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    3. Sonja GRÖNBLOM & Johan WILLNER, 2008. "Privatization And Liberalization: Costs And Benefits In The Presence Of Wage‐Bargaining," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 79(1), pages 133-160, March.
    4. Chris Shugart, 1998. "Regulation-by-Contract and Municipal Services: The Problem of Contractual Incompleteness," Development Discussion Papers 1998-09, JDI Executive Programs.
    5. Leonard F. S. Wang & Ya-chin Wang & Lihong Zhao, 2009. "Privatization and the Environment in a Mixed Duopoly with Pollution Abatement," Economics Bulletin, AccessEcon, vol. 29(4), pages 3112-3119.
    6. Janusz A. Ordover & Russell W. Pittman & Paul Clyde, 1994. "Competition policy for natural monopolies in a developing market economy1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(3), pages 317-343, September.
    7. Patrick Plane, 1996. "La privatisation des services publics en Afrique subsaharienne. Enjeux et incertitudes," Revue Économique, Programme National Persée, vol. 47(6), pages 1409-1421.
    8. Zhenhui Xu & Melissa Birch, 1999. "The Economic Performance of State-owned Enterprises in Argentina an Empirical Assessment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(4), pages 355-375, June.
    9. A. Brandão & S. Castro, 2007. "State-owned enterprises as indirect instruments of entry regulation," Journal of Economics, Springer, vol. 92(3), pages 263-274, December.
    10. Waldemar Milewicz, 2020. "The influence of foreign investors on the development of Polish enterprises – a case study of the BPH bank," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 829-839, December.
    11. Johan WILLNER & Sonja GRÖNBLOM, 2017. "Public Enterprises – Objectives and Performance," Departmental Working Papers 2017-03, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    12. Willner, Johan, 2001. "Ownership, efficiency, and political interference," European Journal of Political Economy, Elsevier, vol. 17(4), pages 723-748, November.
    13. Johan WILLNER & Sonja GRÖNBLOM, 2015. "The Organisation of Services of General Interest in Finland," CIRIEC Working Papers 1520, CIRIEC - Université de Liège.
    14. Johan Willner & Sonja Gronblom, 2016. "The organisation of services of general interest in Finland," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2016(3), pages 89-116.
    15. Ramamurti, Ravi, 1997. "Testing the limits of privatization: Argentine railroads," World Development, Elsevier, vol. 25(12), pages 1973-1993, December.
    16. Willner, Johan & Parker, David, 2002. "The Relative Performance of Public and Private Enterprise Under Conditions of Active and Passive Ownership," Centre on Regulation and Competition (CRC) Working papers 30591, University of Manchester, Institute for Development Policy and Management (IDPM).

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