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

  • Rinaldo BRAU
  • Massimo FLORIO

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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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. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
  2. Newbery, David M, 1995. "The Distributional Impact of Price Changes in Hungary and the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 847-63, July.
  3. Guesnerie Roger, 1976. "On the direction of tax reform," CEPREMAP Working Papers (Couverture Orange) 7603, CEPREMAP.
  4. Roberts, Kevin, 1980. "Price-Independent Welfare Prescriptions," Empirical Economics, Springer, vol. 13(3), pages 277-97, June.
  5. Ray, Ranjan, 1999. "Marginal and Non-marginal Commodity Tax Reforms with Rank Two and Rank Three Demographic Demand Systems," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 689-712, October.
  6. Dixit, Avinash, 1975. "Welfare effects of tax and price changes," Journal of Public Economics, Elsevier, vol. 4(2), pages 103-123, February.
  7. James Banks & Richard Blundell & Arthur Lewbel, 1994. "Tax reform and welfare measurement: do we need demand system estimation?," IFS Working Papers W94/11, Institute for Fiscal Studies.
  8. David M. Newbery, 2002. "Privatization, Restructuring, and Regulation of Network Utilities," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640481, June.
  9. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
  10. Deaton, Angus, 1974. "A Reconsideration of the Empirical Implications of Additive Preferences," Economic Journal, Royal Economic Society, vol. 84(334), pages 338-48, June.
  11. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  12. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  13. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, vol. 42(1), pages 1-45, June.
  14. Massimo Florio, 2001. "The welfare impact of a privatisation: the British Telecom case-history," Departmental Working Papers 2001-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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