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1423class6 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation ± of Industry± Class 6 1
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Outline • History of public enterprise • Theory of private vs. public enterprise • Managerialism: better or worse? • Prices under different forms of ownership • Productive efficiency under public ownership • Privatization: theory and evidence • Conclusions 2
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A history of Public Ownership Romans had public ownership of water industry and military arms production. • Public ownership in the US is substantial in: – Electricity (20%, 2000+ firms) and Gas – Water (80%) – Local transport: bus, subway, commuter rail. –R ail – Roads – Airports In post-War Europe more public ownership of telecoms, electricity and other commercial firms.
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The case for public ownership • To achieve re-distributive goals • To ensure adequate investment • To prevent monopolisation • To facilitate coordination • To ensure safety or security • To reduce financial cost (inc. regulatory cost) • To allow more macroeconomic stabilisation 4
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The case for private ownership Markets are good at allocating property rights (Property Rights Theory, Alchian and Demsetz, 1965). Bureaucracies are bad at running businesses (Public Choice Theory, Niskanen, 1968). Explicit regulation of privatised companies can be more effective than oversight of public corporations (Theory of Regulation, Baron and Myerson, 1982). Private ownership reduces influence activities and power of interest groups (Influence theory, Milgrom and Roberts,90). Private ownership increases cost of disruptive government intervention (Commitment Theory, Boycko et al., 1996). 5
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Organisational Alternatives ± (Parker and Hartley, 91)± • Co-operatives • Central government ownership (large scale) • Municipal government ownership (small scale) • Government Department • Quasi-Government Agency • Public Corporation • Wholly-owned public limited company (plc) • Public limited company (plc) 6
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Incentives in the public and private sector Is it possible to incentivise utility managers to deliver socially optimal service? Yes, if contracts can be written which reward managers
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This note was uploaded on 11/18/2011 for the course ECON 14.23 taught by Professor Daronacemoglu during the Fall '09 term at MIT.

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1423class6 - 14.23 Government Regulation of Industry Class...

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