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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.

Suggested Citation

  • Rinaldo Brau & Massimo Florio, 2004. "Privatisations as price reforms: Evaluating consumers' welfare changes in the U.K," Annals of Economics and Statistics, GENES, issue 75-76, pages 109-133.
    • Handle: RePEc:adr:anecst:y:2004:i:75-76:p:109-133
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    References listed on IDEAS

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    Cited by:

    1. 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, vol. 21(1), pages 1-27.
    2. G. Marletto, 2006. "La politica dei trasporti come politica per l'innovazione: spunti da un approccio evolutivo," Working Paper CRENoS 200605, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • D6 - Microeconomics - - Welfare Economics

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