Nationalization and Privatization: A Rational-Choice Perspective on Efficiency

This paper analyzes the use of nationalization and privatization policies to redistribute costs and benefits among interest groups, using a rational-choice framework. The major cases considered are the post-war nationalizations and the current wave of privatizations in the United Kingdom, plus France and the United States. The analysis indicates that governments tend to redistribute benefits to more concentrated interest groups, such as organized labor or shareholders, and to impose costs on more diffuse groups, such as consumers and taxpayers. This type of redistribution is often economically inefficient, but politically efficient for the party in power. Policy design is also influenced by the ease with which policies can be changed by future governments within the prevailing political institutions.