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Infrastructure and public utilities privatization in developing countries

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  • Auriol, Emmanuelle
  • Picard, Pierre M.

Abstract

The paper analyzes governments'tradeoff between fiscal benefits and consumer surplus in privatization reforms of noncompetitive industries in developing countries. Under privatization, the control rights are transferred to private interests so that public subsidies decline. This benefit for tax-payers comes at the cost of price increases for consumers. In developing countries, tight budget constraints imply that privatization may be optimal for low profitability segments. For highly profitable public utilities, the combination of allocative inefficiency and critical budgetary conditions may favor public ownership. Finally, once a market segment gives room for more than one firm, governments prefer to regulate the industry. In the absence of a credible regulatory agency, regulation is achieved through public ownership.

Suggested Citation

  • Auriol, Emmanuelle & Picard, Pierre M., 2006. "Infrastructure and public utilities privatization in developing countries," Policy Research Working Paper Series 3950, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3950
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    Cited by:

    1. Pierre M. Picard & Ridwan D. Rusli, 2018. "State‐owned firms and private debt," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(5), pages 672-702, October.
    2. Auriol, Emmanuelle & Picard, Pierre M., 2013. "A theory of BOT concession contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 187-209.
    3. Dan Bogart & Latika Chaudhary, 2012. "Regulation, Ownership, and Costs: A Historical Perspective from Indian Railways," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 28-57, February.
    4. Emmanuelle Auriol & Sara Biancini, 2015. "Powering Up Developing Countries through Integration?," The World Bank Economic Review, World Bank Group, vol. 29(1), pages 1-40.
    5. Bogart, Dan & Chaudhary, Latika, 2015. "Off the rails: Is state ownership bad for productivity?," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 997-1013.
    6. Emmanuelle Auriol & Stéphane Straub, 2011. "Privatization of Rent-Generating Industries and Corruption," Chapters, in: Susan Rose-Ackerman & Tina Søreide (ed.), International Handbook on the Economics of Corruption, Volume Two, chapter 7, Edward Elgar Publishing.
    7. Sara Biancini, 2010. "Incomplete Regulation, Competition, and Entry in Increasing Returns to Scale Industries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(6), pages 1003-1026, December.
    8. Emmanuelle Auriol & Antonio Estache & Liam Wren-Lewis, 2018. "Can Supranational Infrastructure Regulation Compensate for National Institutional Weaknesses?," Revue économique, Presses de Sciences-Po, vol. 69(6), pages 913-936.
    9. Jensen, Olivia & Wu, Xun, 2017. "The hybrid model for economic regulation of water utilities: Mission impossible?," Utilities Policy, Elsevier, vol. 48(C), pages 122-131.
    10. González, Paula & Macho-Stadler, Inés, 2013. "A theoretical approach to dual practice regulations in the health sector," Journal of Health Economics, Elsevier, vol. 32(1), pages 66-87.
    11. Auriol, Emmanuelle & Biancini, Sara, 2009. "Economic Integration and Investment Incentives in Regulated Industries," TSE Working Papers 09-039, Toulouse School of Economics (TSE).
    12. Chandrima Mukhopadhyay, 2011. "Are Private Investments Serving the Poor in India?," Journal of Infrastructure Development, India Development Foundation, vol. 3(1), pages 39-63, June.
    13. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
    14. Emmanuelle Auriol & Erling Hjelmeng & Tina Søreide, 2023. "Corporate criminals in a market context: enforcement and optimal sanctions," European Journal of Law and Economics, Springer, vol. 56(2), pages 225-287, October.
    15. Haldun Evrenk & E. Zenginobuz, 2010. "Regulation through a revenue contest," Journal of Economics, Springer, vol. 99(3), pages 211-237, April.
    16. Dementiev, Andrei & Han, Hyen Jin, 2020. "A theory of deregulation in public transport," Research in Transportation Economics, Elsevier, vol. 83(C).
    17. Razvan Catalin DOBREA & Nadia CIOCOIU & Stelian TIPA, 2010. "Investments characteristics in infrastructure industry," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(1), pages 204-210, June.
    18. Tan, Jeff, 2012. "The Pitfalls of Water Privatization: Failure and Reform in Malaysia," World Development, Elsevier, vol. 40(12), pages 2552-2563.
    19. Antonio Estache & Liam Wren-Lewis, 2009. "Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 729-770, September.
    20. Li, Shuai & Cai, Jiannan & Feng, Zhuo & Xu, Yifang & Cai, Hubo, 2019. "Government contracting with monopoly in infrastructure provision: Regulation or deregulation?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 506-523.
    21. Jos van Bommel & Jose Penalva, 2012. "The Governance of Perpetual Financial Intermediaries," DEM Discussion Paper Series 12-10, Department of Economics at the University of Luxembourg.
    22. Bertoméu-Sánchez, Salvador & Camos, Daniel & Estache, Antonio, 2018. "Do economic regulatory agencies matter to private-sector involvement in water utilities in developing countries?," Utilities Policy, Elsevier, vol. 50(C), pages 153-163.

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    More about this item

    Keywords

    Economic Theory&Research; Public Sector Economics&Finance; Privatization; Markets and Market Access; State Owned Enterprise Reform;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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