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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 25: Privatization and Regulation of Public Utilities: Problems and Challenges for Developing Economies

David Parker


David Parker Introduction In recent years market liberalization and privatization have been championed as a means of spreading the benefits of globalization worldwide (Ramanadham, 1993). Policies favouring market liberalization and privatization have been advanced by economists (for example, Aharoni, 1986; Hanke, 1987; Cook and Kirkpatrick, 1988; Vickers and Yarrow, 1988; Shapiro and Willig, 1990; Boycko et al., 1996) and the main international aid and trade bodies, particularly the World Bank, IMF, OECD, Asian Development Bank and latterly the World Trade Organisation (WTO) (Ikenberry, 1990:100; Ramamurti, 1992; World Bank, 1995). In 2000 global privatization receipts rose to a record US$200bn (Privatization International, January 2001). Nevertheless, in spite of, and sometimes because of, privatization, state regulation of the economy continues to grow. State regulation exists because private markets can ‘fail’. Market failure is likely where (a) markets are dominated by monopolies because of economies of scale or scope in production technology; (b) there are significant external costs and benefits, so that not all gains and costs are captured by the direct participants in the economic exchange; (c) markets are incomplete, so that price signals do not produce a socially optimal allocation of resources; for instance, where markets are ‘missing’ or underdeveloped; (d) there are information deficiencies in markets, so that markets do not allocate resources efficiently; (e) society may decide that free market outcomes are undesirable because of the resulting distribution of income and wealth; and (f) goods are ‘public goods’, that is, non-rival and...

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