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Why Regulate a Privatised Firm?

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  • A.R. Kemal

    (Planning Commission, Government of Pakistan, Islamabad.)

Abstract

The paper examines changes in the levels of efficiency as a result of privatisation in Pakistan. By comparing the growth rates of the privatised industries in pre- and post- Privatisation period, changes in relative prices and the rate of return on equity, it concludes that producers may have indulged in monopolistic exploitation. The paper argues that even if the private firms have lower cost curves as compared to public sector at all the levels of output, at the equilibrium, public-sector firms may have lower cost. Accordingly, the regulation of the private monopoly, especially in the non-traded sector, is absolutely necessary. However, if regulation implies uncertainty and less flexibility to private sector firms, even compared with public sector enterprises, then regulated privatesector firms would be counter-productive. It suggests that the perfect contest-ability model which allows the firm to make sufficient profits and leave them free to take the decisions will be a better alternative. The price caps in line with changes in productivity and the general inflation rates may be a more efficient intervention.

Suggested Citation

  • A.R. Kemal, 1996. "Why Regulate a Privatised Firm?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 35(4), pages 649-656.
    • Handle: RePEc:pid:journl:v:35:y:1996:i:4:p:649-656
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    File URL: http://www.pide.org.pk/pdf/PDR/1996/Volume4/649-656.pdf
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    References listed on IDEAS

    as
    1. Foreman-Peck, J., 1989. "Ownership, Competition And Productivity Growth: The Impact Of Liberalisation And Privatisation Upon British Telecom," The Warwick Economics Research Paper Series (TWERPS) 338, University of Warwick, Department of Economics.
    2. Caves, Douglas W & Christensen, Laurits R, 1980. "The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 958-976, October.
    3. Baumol, William J., 1996. "Rules For Beneficial Privatization: Practical Implications Of Economic Analysis," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 3, pages 1-32.
    4. Syed Nawab Haider Naqvi & A. R. Kemal, 1991. "The Privatization of the Public Industrial Enterprises in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 30(2), pages 105-144.
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    Cited by:

    1. Abdullah Muhammad Iqbal & Iram Khan & Zeeshan Ahmed, 2015. "Earnings Management and Privatisations: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(2), pages 79-96.
    2. A. R. Kemal, 2002. "Regulatory Framework in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 319-332.
    3. Iram A. Khan, 2003. "Impact of Privatisation on Employment and Output in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 513-536.

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