George Yarrow

Privatization in theory and practice

Privatization George Yarrow This paper examines the theoretical and empirical case for private versus public ownership. Privatization usually leads managers to place greater emphasis on the pursuit of profits. However, whether this is beneficial to society depends on the trade-off between possible market failures due to a lack of competition and deficiencies in government control of public firms. The competitive and regulatory environment is more important than the question of ownership per se . In competitive markets there is a presumption in favour of private ownership. Where there is a natural monopoly, vigorous regulatory action is required. The evidence suggests that privatization has led to improved performance by firms such as the National Freight Corporation and Cable and Wireless which operate in a relatively competitive environment. The benefits are less clear in the case of firms like BP, Britoil and British Aerospace. However, the most worrying case is that of British Telecom and the projected privatization of British Gas where little thought has been given to limiting the abuse of monopoly power. Rather the regulatory environment has been tailored to the needs of the existing management and to ensuring a successful share flotation. Privatization is also advanced as a weapon for reducing trade union power, encouraging wider share ownership, redistributing wealth and improving the public finances. However, there are other policy instruments better suited to achieving these objectives. The existing privatization programme has not led to a marked widening of share ownership and has resulted in windfall gains to a small group of investors at the expense of taxpayers in general.

The British electricity experiment

The British electricity experiment John Vickers and George Yarrow Privatization of the British electricity supply industry has been accompanied by a series of far-reaching structural and regulatory reforms. Whereas traditional solutions to market failure problems in electricity supply rely on high degrees of vertical and horizontal integration or collaboration, the British reforms have included the vertical separation of transmission from generation and (partially) of distribution from supply, together with horizontal de-integration in generation. The comparative radicalism of the reforms should yield considerable information about a set of generic issues that confront policy-makers, not only in electricity supply, but also in other industries where major questions of competition policy arise. These issues include efficiency tradeoffs between markets and hierarchies, problems of tacit collusion, the significance of entry conditions, the role of regulators, and the interactions between regulation of market power and other controls, such as environmental regulation. Initial evidence indicates that, as intended, significant new entry is occurring in both electricity generation and supply. Many issues remain to be resolved, however, not least in the area of environmental regulation, and it is far from clear whether, ultimately, the reforms will be judged a success in terms of their impact on economic efficiency.

A theory of privatization, or why bureaucrats are still in business

Abstract Privatization is a dynamic phenomenon, and changes in ownership arrangements require explanations based upon changes in background variables. Without movements in these variables bureaucrats are likely to stay in business, even if reform would increase efficiency. It is argued that changes in one such variable, the cost of government finance, have played a particularly significant role in trigerring privatizations and related reforms. The increasing cost of government finance, resulting from higher levels of general public expenditure and taxation, also explains the policy sequence, observed in many countries, in which comprehensive ownership reform is preceded by a period of increased financial stringency for state-owned enterprises (SOEs).

Reform of the electricity supply industry in Britain: An assessment of the development of public policy☆

Abstract Several countries have been trying gradually to increase competition in electricity supply, but Britain has just taken a radical step with this aim. A vertically integrated, administered structure has been replaced by one that is more market-based. In particular, electricity generation and transmission have been separated. Policy proceeded in four steps: the commitment to privatise, structural reform, establishment of the regulatory framework, and decisions on contractual arrangements. This paper discusses difficulties that arose as policy developed and argues that the complexities of market failure problems in electricity supply were underestimated initially. Some lessons for policymakers elsewhere are suggested.

Growth Maximisation and the Firm's Investment Function

possibility of empirically discriminating between the two depends chiefly upon their respective predictions concerning the relationships between the firms level of investment and parameters such as the interest rate and the rate of profits tax. Second, given the importance of the shape of the aggregate investment function for the existence or nonexistence of full-employment equilibrium and for the choice of appropriate government policy instruments, it is of interest to consider whether or not nonprofitmaximising behavior at the managerial level has any important implications for the position and elasticity of this key macroeconomic relationship. This article examines in detail the invest-

Privatization in Britain

The importance that privatization would come to have in the economic policies of the Thatcher government would have been difficult to foresee in 1979. The Conservative election manifesto of that year had relatively little to say about privatization, although the party’s desire to “roll back the frontiers of the state” and promote a “property owning democracy” were prominent themes. In the government’s first term in office (June 1979 to June 1983), the sale of public-sector housing was the most important policy in this regard. Between 1979 and 1983 nearly 600,000 houses and flats were sold — mainly at discount prices to their tenants — which was more than in the entire post-war period up to that time. In 1982, receipts from housing sales approached £2 billion.

The price of nuclear power

Nuclear power George Yarrow Treating existing environmental and safety standards as given, this paper investigates the relative cost of having nuclear and coal-fired power stations to meet base-load demand for electricity. The assessment is most sensitive to the particular assumptions made about three parameters: construction costs, the price of coal, and the discount rate used in the investment appraisal. The author challenges the conventional wisdom that nuclear power has substantial cost advantages, arguing that the usual calculations adopt values of the key parameters which are unduly favourable to nuclear power. More plausible estimates change the balance of advantage. Cost efficiency requires that most OECD countries should meet demand for new capacity through coal-fired stations. However, it would generally be costly greatly to reduce the operating life of existing nuclear capacity. The main qualification to these conclusions is that a sufficiently large nuclear programme may reduce construction costs to an extent that allows nuclear power to remain cost-efficient in meeting base demand, as in Belgium, France and Japan. Even so, Belgium and France already have sufficient nuclear capacity to meet base-load demand in full, so the case for further nuclear capacity remains weak.

Editorial: Competition Policy: Its Purposes and Scope

No abstract available.

Privatization: An Economic Analysis

The process of selling assests and enterprises to the private sector raises questions about natural monopolies, the efficiency and equity of state-owned versus privately owned enterprises, and industrial policy. This comprehensive analysis of the British privatization program explores these questions both theoretically and empirically.