Edited by Patrizio Bianchi and Sandrine Labory
Chapter 9: Liberalization and Regulation of Public Utility Sectors: Theories and Practice
Tom Björkroth, Sonja Grönblom and Johan Willner 1 Introduction Traditionally, public utilities were seen as associated with a number of potential market failures that justiﬁed public intervention. For example, telecommunications, electricity, railways, gas and water supply typically include elements of a natural monopoly. In the USA, intervention usually meant regulated private monopolies, whereas such industries in Europe were nationalized monopolies until the 1980s. The European approach has now shifted towards competition (with and without privatizing the incumbent) and sometimes privatization with regulation if competition is not possible. State-owned companies and public utilities have been privatized for a variety of reasons, including sales revenues and popular capitalism, or as part of a perceived modernization. But the dominant oﬃcial motive has in general been the belief that public ownership is less cost-eﬃcient (Kay and Thompson, 1986; Vickers and Yarrow, 1988). But some surveys of public and private ownership, such as Borcherding et al. (1982) and Megginson and Netter (2001) conclude in favour of private ownership, while others, such as Millward (1982), Boyd (1986) and Willner (2001, 2003) do not. Also, a number of studies ﬁnd no improvement in performance after privatization (on Britain and Finland, see for example Martin and Parker, 1997; Florio, 2004; Willner, 2006a). Privatization has in addition mostly aﬀected monopolistic or oligopolistic industries, so the social costs of, for example, imperfect competition may dominate even if costs are reduced (Willner, 1996, 2003). It is therefore often argued that performance improvements after privatization are...
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