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Privatisations as price reforms: Evaluating consumers' welfare changes in the U.K

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  • Rinaldo BRAU
  • Massimo FLORIO

Abstract

This paper analyses the effects on consumers' welfare of the privatisation policy carried out in the UK since 1979. The approach we follow evaluates the privatisation of a State owned enterprise within the broader framework of the "policy reform" theory (Drèze and Stern [1990]). By adopting this perspective, the change in consumers' welfare "with" and "without" privatisations can be studied by appropriate welfare measures. We claim that an advantage of our approach is that of being able to provide the required welfare assessment in a simplified way by means of a limited set of information. In particular, we show that a series of welfare measures only based on aggregate information can be used where one accepts the use of first and second order approximations and a few "reasonable" assumptions on the shape of demand functions. These welfare measures are subsequently used for the evaluation of the welfare effects related to price variations in seven British privatised public utilities. We conclude that the contribution to consumers' welfare of the privatisation policy in the UK, when compared to the huge transfers involved in the process, has been rather modest.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2004)
Issue (Month): 75-76 ()
Pages: 109-133

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Handle: RePEc:adr:anecst:y:2004:i:75-76:p:06

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  1. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, Elsevier, vol. 2(3), pages 244-263, September.
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  3. Ray, R, 1997. "Marginal and Non Marginal Commodity Tax Reforms with Rank Two and Rank Three Demographic Demand Systems," Papers, Tasmania - Department of Economics 1997-02, Tasmania - Department of Economics.
  4. Banks, James & Blundell, Richard & Lewbel, Arthur, 1996. "Tax Reform and Welfare Measurement: Do We Need Demand System Estimation?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(438), pages 1227-41, September.
  5. Massimo Florio, 2001. "The welfare impact of a privatisation: the British Telecom case-history," Departmental Working Papers, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano 2001-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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  7. Guesnerie, Roger, 1977. "On the direction of tax reform," Journal of Public Economics, Elsevier, Elsevier, vol. 7(2), pages 179-202, April.
  8. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, Elsevier, vol. 42(1), pages 1-45, June.
  9. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  10. Deaton, Angus, 1974. "A Reconsideration of the Empirical Implications of Additive Preferences," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 84(334), pages 338-48, June.
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Cited by:
  1. Marcel G�rard, 2006. "Reforming the taxation of multijurisdictional enterprises in Europe: a tentative appraisal," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 265, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Marcel Gérard, 2005. "Multijurisdictional Firms and Governments’ Strategies under Alternative Tax Designs," CESifo Working Paper Series, CESifo Group Munich 1527, CESifo Group Munich.
  3. Massimo Florio, 2007. "Electricity Prices as Signals for the Evaluation of Reforms: An Empirical Analysis of Four European Countries," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(1), pages 1-27.

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