The Political Economy of Privatization

Until recently, research on privatization has focused almost exclusively on whether, and under what circumstances, a change in ownership leads to gains in efficiency and increases in social welfare. One of the fundamental questions has been whether ownership or competition is the key variable. With an emphasis on allocative efficiency, the focus has been on how to increase competition, especially in industries having the characteristics of natural monopolies, externalities and public goods. In these cases measures of regulation and deregulation seem to be more crucial than ownership.1