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An Agency Perspective on the Costs and Benefits of Privatization

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  • David Martimort

Abstract

This paper proposes a unified theoretical framework to discuss the costs and benefits of privatization using the recent advances of Incentive Theory. I begin by presenting a simple model in which the State (the principal) delegates a task (e.g., the production of a public good) to the private sector (the agent). I give and discuss conditions for the “Irrelevance Theorem” due to Sappington and Stiglitz [Sappington, D., & Stiglitz, J. (1987) Journal of Policy Analysis and Management, 6, 567–582] to hold under complete contracting. I then show how various contract incompletenesses can make either public or private ownership optimal. Finally, I provide critical assessments of these results. Copyright Springer Science+Business Media, LLC 2006

Suggested Citation

  • David Martimort, 2006. "An Agency Perspective on the Costs and Benefits of Privatization," Journal of Regulatory Economics, Springer, vol. 30(1), pages 5-44, July.
    • Handle: RePEc:kap:regeco:v:30:y:2006:i:1:p:5-44
    DOI: 10.1007/s11149-006-0007-4
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    References listed on IDEAS

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    1. Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447, Elsevier.
    2. Martimort, D. & Sand-Zantman, W., 2004. "Signaling and the Design of Delegated Management for Public Utilities," Cahiers du LASER (LASER Working Papers) 2004.11, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
    3. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    5. Laffont,Jean-Jacques, 2005. "Regulation and Development," Cambridge Books, Cambridge University Press, number 9780521840187, January.
    6. Shirley, Mary & Walsh, Patrick, 2000. "Public versus private ownership : the current state of the debate," Policy Research Working Paper Series 2420, The World Bank.
    7. Eytan Sheshinski & Luis F. López-Calva, 2003. "Privatization and Its Benefits: Theory and Evidence," CESifo Economic Studies, CESifo, vol. 49(3), pages 429-459.
    8. Shapiro, C. & Willing, D.R., 1990. "Economic Rationales For The Scope Of Privatization," Papers 41, Princeton, Woodrow Wilson School - Discussion Paper.
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    More about this item

    Keywords

    Privatization; Regulation; Agency Costs; Incentives; L51;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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