Thus, we introduced the subject here. Where the output is homogeneous, such as gas and electricity, the regulator may use an average revenue target, whereby the predicted rise in average revenue in the firm is not permitted to exceed RPI-Z. Transfer of control of State or municipally controlled enterprises. The economics of regulation now enters in the picture. Government services and operations may also be (denationalised) privatised; in this circumstance, private entities are tasked with the application of government plans or execution of government assistance that had earlier been the vision of state-run companies. The effect on government revenue is more complex than it might appear. 2.bring employment opportunities to people 3.better service to customers 4.easy funding Before publishing your Articles on this site, please read the following pages: 1. Therefore there is no scope for having competition amongst several firms. Privatisation can suggest several things, including migrating something from the public sector into the private sector. This means permitting lower prices for price-elastic services and relatively higher prices on price-inelastic services. 4. The objectives of the politicians who owned the companies were often conflicting, the government department in charge of the company added another layer of complexity, with the result that management has no clear objectives and no sustained incentive to perform. On total factor productivity. Against this background, it is easy to believe a European Commission estimate that complete liberalisation of the European airline would bring about a 10% decline in costs and prices which will bring benefits of some $1 billion per year, obtained through lower pay costs, more efficient deployment of the workforces and lower overheads. This led to areas where it was unclear who had responsibility. Often privatisation of state-owned monopolies occurs alongside deregulation – i.e. In the case of an outright sale, the gain to the state cannot be equated with the sale price. Some regulators use a formula related to rate return on capital which the monopoly would not be permitted to exceed. For example, East Germany had privatized some 12,000 firms, about 85% of all firms in the previous regime operating under state-ownership. 2. A key consideration is the effect on efficiency, IE. Government companies are transformed into private companies in 2 ways. It is being spent on building up military power or on consumer hand-outs or on long-term investment for the future. assymetric information? The efficiency of PSU’s was improved by giving them the autonomy to make decisions. This means the government misses out on their dividends, instead going to wealthy shareholders. For any economy, privatisation is important, as it creates jobs and builds a healthy competition in the market. Q.3- ______________ means transfer of ownership, management and control of public sector enterprises to the private sector. 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Some instances involve law enforcement, revenue collection, and prison management. For any economy, privatisation is important, as it creates jobs and builds a healthy competition in the market. To please shareholders they may seek to increase short term profits and avoid investing in long term projects. Privatisation is often achieved through listing the new private company on the stock market. Some privatized companies have achieved a successful turnaround, notably BT and BA, but the verdict on the privatisation of British Rail and Water industry is far from success. It depends on the industry in question. Too often nationalized industries abused their monopoly power. However, this is a one-off benefit. Many of the privatised companies in the UK are quite profitable. No less important was technological change. It depends on the quality of regulation. It means a transfer of ownership, management, and control of public sector enterprises to the private sector. 3. The most important of them has been a disillusion with the capacity of the nationalized industries to deliver effective and efficient services to the public and to achieve social goals they were set up to attain. Selling them was seen as a way of reducing or eliminating budget deficit. This avoids the problem of direct price control, but has the disadvantage of reducing the incentive to firms to minimise costs, once the permitted profit rate has been attained. The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. By outright sale of public sector companies. The move to privatize began in the UK and New Zealand in the 1980s; it spread to continent in the 1990s and now taking a front seat in the large number of less developed countries. The second step is how to deal with the natural monopoly element. Do regulators make the privatised firms meet certain standards of service and keep prices low? There are areas of the economy to which the ethos of a state company is particularly unsuitable and where privatisation might have yielded some benefits. Some companies were given a special category of Navratna and Mini-Ratna. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer. For example, tap water has very significant fixed costs. Another problem is that the formula could act as disincentive to efficiency if more efficient performance were to lead to subsequent upward revision of X. But banning competitors would be redundant if the economies of scale were really powerful, so the existence of legal restriction suggests that the monopoly was not so natural after all. But I appear that Some sector such as Health sector, Education sector, Railway sector should’nt privatised. The first step is to break down or unbundled the services provided by the monopoly into component parts so as to isolate the core natural monopoly element is the industry. Required fields are marked *, Frequently Asked Questions on Privatisation. Do those industries just attract different kinds of people who are not as motivated by profit as other industries? These need regulating to prevent abuse of monopoly power. Increased competition. There are many reasons for privatisation. – from £6.99. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election. The number and scope of privatisation programme around the world shows that finance ministers are convinced that the potential benefits exceed any potential losses. For one thing, these countries where being transformed from a situation in which almost the entire economy was state-owned. They provide bad services at higher prices. Many less developing countries saw privatisation as a golden one-off opportunity to reduce public sector debt and to set motion a lower tax environment without damaging increases in budget deficits. In deciding on the right value of X, the regulator may have to be guided by the expert, with the inside knowledge of the firm. While providing flexibility, regulation could be highly controversial.

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