Chapter 11: The social impact of privatization and the regulation of utilities in Peru
Máximo Torero and Alberto Pascó-Font 1. INTRODUCTION In August 1990, Peru embarked on a drastic stabilization and structural reform process comprising a vast programme of privatization of the main utilities: electricity, telephone and, to a lesser extent, water and sanitation. This research tries to assess the welfare impact of privatization on Peruvian urban households. The objective is, therefore, to assess the distributive eﬀects of price changes brought about by privatization and to determine which households bear a greater portion of the burden or enjoy most of the beneﬁts of reforms. To accomplish this objective, three complementary methodologies are followed in this chapter. The ﬁrst consists of calculating concentration curves to show how services are distributed among the population. The second methodology, based on the study by Waddams Price and Hancock (1998), consists of measuring the changes in consumer welfare associated with changes in structure and price levels. Finally, under the third methodology, demand equations are estimated for the diﬀerent utilities applying a two-stage Heckman procedure to correct for the probability of having access to the service. Using the elasticities estimated with this two-stage procedure, we calculate welfare changes associated with the consumption of the utilities. The depth of the reforms, particularly the extent of privatization, is uneven across sectors. Despite these diﬀerences, the improvements in service supply are very signiﬁcant. However, there are still major problems which could explain why the welfare impact – according to our calculations – is not signiﬁcant, and may...
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