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Public ownership, privatisation and regulation: social welfare counterfactuals for British Telecom

Author

Listed:
  • Massimo Florio

    (University of Milan)

  • Riccardo Puglisi

    (Department of Political Science, Massachusetts Institute of Technology)

Abstract

Is privatization per se socially beneficial? Or do those benefits depend on the subsequent changes in the regulatory regime? In this paper, building on Vogelsang, Jones and Tandon (1994), we answer these questions by analyzing three different counterfactuals about British Telecom privatization and regulation. In the factual scenario, the British government decided to privatize British Telecom, and at the same time to establish an independent agency (OFTEL), which was to impose a price cap mechanism on BT services, in those market segments in which competition was unfeasible or limited. Our research strategy is to follow a simple ceteris paribus approach, and to change in each counterfactual only one aspect of the institutional setup. The analysis suggests that the change in ownership from public to private had negative welfare effects, under reasonable assumptions about the productive efficiency gains arising from it. Moreover, the paper studies the relationship between productive and allocative efficiency, by making hypotheses about the price changes induced by the new regulatory regime

Suggested Citation

  • Massimo Florio & Riccardo Puglisi, 2006. "Public ownership, privatisation and regulation: social welfare counterfactuals for British Telecom," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1017, Universitá degli Studi di Milano.
  • Handle: RePEc:bep:unimip:unimi-1017
    Note: oai:cdlib1:unimi-1017
    as

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