Chapter 4: Funding Public Services in Europe: State Banks or Public–Private Partnerships (PPPs)?
Patrick Artus INTRODUCTION: THE PROVISION OF SERVICES OF GENERAL INTEREST IN EUROPE Services of general interest (SGIs) (whether economic or otherwise) are services for which there exist markets, but for which there are also speciﬁc obligations of public service. There may be an obligation of universal service, for example, access for the entire population, quality, security, aﬀordable pricing, and so on. These speciﬁc obligations require a supervisory public authority (a regulator). Examples include energy, transport, telecommunications, the postal service, but also education, training, health, waste management, among others. Two types of SGI can be distinguished: those that can be provided by private operators that are subject to regulation, rules and monitoring, and those that are more diﬃcult to provide through markets, in particular when a situation of natural monopoly obtains: the cost of production is less when it is evaluated by a single ﬁrm because of signiﬁcant ﬁxed costs/network activities or because there are signiﬁcant network eﬀects (positive externalities). The problem is then that the pricing structure chosen by the monopoly is higher than eﬀective marginal cost pricing. Thus, either marginal cost pricing can be imposed, and the monopoly subsidized, thereby running the risk that it will have no incentive to rationalize; or, a secondlevel optimum with average cost pricing can be chosen; or, a system of cross-subsidies can be put in place between those services that are the object of a public service obligation and the other services. In most network...
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