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International Handbook on Privatization

Edited by David Parker and David Saal

Privatization has dominated industrial restructuring programs since the 1980s and continues to do so. This authoritative and accessible Handbook considers all aspects of this key issue, including: the theory of privatization; privatization in transition, developed and developing economies; as well the economic regulation of privatized industries.
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Chapter 4: Privatization: A Sceptical Analysis

Johan Willner


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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