The Theory and Practice of Privatisation

Abstract

In this paper the arguments for privatisation are reviewed in some depth. Forcompetitive markets the view of Balladur (1997 54) that "The state has no legitimate grounds for assuming control over business in the competitive sectors of the economy. Everyone recognises this nowadays" is accepted. For concentrated markets a separation theorem of Willig (1993) that means that in the presence of secure property rights a regulated private firm will perform in a superior manner to a public sector firm is also accepted. This theorem is discussed in some detail because it has explanatory power for empirical studies of privatisation in the presence of regulation and implications for the form of regulation. The process and design of privatisation are discussed before briefly reviewing empirical assessments of privatisation. The paper starts with a section about state owned enterprises (SOEs) because these are the government entities that most closely resemble privatised firms.