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Privatization of natural monopoly public enterprises: The regulation issue

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Abstract

The paper presents a simple model that calculates — as a percentage of industry revenues — the welfare gains or losses that might ensue when a public enterprise natural monopoly is replaced by a profit maximizing private monopoly. The model incorporates both the pre-privatization demand elasticity and production efficiency changes subsequent to privatization. The magnitude of the welfare changes suggests that allocative efficiency improvements do not provide a compelling rationale for post-privatization regulation. Greater consideration must be given to other regulatory objectives including distributional concerns and the need to create an institutional environment that encourages investment.

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Authors and Affiliations

  1. Department of Economics, Williams College, 01267, Williamstown, MA, USA

    Ralph Bradburd

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  1. Ralph Bradburd
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Professor of Economics, Williams College. The analysis contained in this paper was initially performed under contract to the World Bank; however, the opinions and analyses contained within it are entirely those of the author and should in no way be taken to represent a World Bank position. This paper benefited from many helpful conversations with Brian Levy and with members of the Department of Economics at Williams College.

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Bradburd, R. Privatization of natural monopoly public enterprises: The regulation issue. Rev Ind Organ 10, 247–267 (1995). https://doi.org/10.1007/BF01027074

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