Working Paper: CEPR ID: DP6018
Authors: Emmanuelle Auriol; Pierre M. Picard
Abstract: The paper analyses governments? trade-off between fiscal benefits and consumer surplus in privatization reforms of noncompetitive industries in developing countries. Under privatization, the control rights are transferred to private interests so that public subsidies decline. This benefit for tax-payers comes at the cost of price increases for consumers. In developing countries, tight budget constraints imply that privatization may be optimal for low profitability segments. For highly profitable public utilities, the combination of allocative inefficiency and critical budgetary conditions may favour public ownership. Finally, once a market segment gives room for more than one firm, governments prefer to regulate the industry. In the absence of a credible regulatory agency, regulation is achieved through public ownership.
Keywords: developing countries; government budget constraint; infrastructure privatization; public utilities; regulation
JEL Codes: H54; L33; L43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal conditions (H39) | Privatization decisions (L33) |
| Privatization (L33) | Reduction in government subsidies (H23) |
| Reduction in government subsidies (H23) | Taxpayer benefits (H20) |
| Reduction in government subsidies (H23) | Consumer surplus (D11) |
| Profitability (L21) | Privatization decisions (L33) |
| Market structure (D49) | Ownership decisions (G32) |
| Opportunity costs (D61) | Privatization decisions (L33) |
| High opportunity costs (D61) | Retaining profitable public firms (L32) |