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Chapter 4: Privatization: A Sceptical Analysis
Johan Willner Introduction This contribution criticizes the present international trend to minimize the extent of public ownership. Public ownership is associated with potential beneﬁts, for example if there are externalities or if it is not possible to achieve a suﬃcient degree of competitiveness. Even if privatization leads to lower production costs (which is not certain), it is not beneﬁcial unless the cost reductions overshadow the lost beneﬁts of public ownership. This sceptical view does not, however, rule out public enterprises being sold, because the state or the local authority might want to transfer its activities from one sector to another. This underlines the role of proper procedures for privatization, which is the topic of other chapters in this volume. The ﬁrst section of this chapter deals with the rationale for public ownership and privatization. The following section compares the costs and beneﬁts of public and private ownership. Later sections show that the empirical comparisons of cost eﬃciency tend to go either way, and oﬀer some explanations of why this is the case. It is sometimes argued that competition, and therefore deregulation, might be more important than the privatization of the incumbent, but some dissenting views on market structure are provided in the argument below. The chapter also addresses the need to transcend the traditional and simplistic behavioural assumptions, and ends with some concluding remarks. Theoretical points will be illustrated throughout the chapter by a simple model of a market with linear demand. While...
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