10.3 Signposting

Question 1

Nationilisation Pros

Answer 1

• Public sector firms may benefit from larger economies of scale and productive efficiency.
• Public sector firms are more likely to be allocatively efficient
• The public sector can promote employment and skills training
• he public sector can be a vehicle for macro-economic control

Question 2

Nationilisation Cons

Answer 2

• Public sector firms lack the incentive to minimise costs
• Public sector firms may suffer from diseconomies of scale
• Public sector firms may be complacent and wasteful in production
• There is a lack of supernormal profit made in the public sector. Dynamic Efficiency
• Prices may be lower and consumer surplus greater with private sector involvement
• Public sector provision is extremely expensive and funded through the taxpayer
• There is a greater risk of moral hazard with public sector involvement.
• Political priorities can override commercial issues on capital projects.

Question 3

Nationilisation Evaluation

Answer 3

• Despite nationalisation being very expensive, it can be argued that the delivery of key public services
  provides more benefit than costs especially if the service would be under produced in the private sector
  as it is a merit good or not supplied at all due to it being a public good
• The size of nationalised vs privatised firms is important to evaluate whether nationalisation will
  result in greater economies of scale benefits or loses
• If regulation of private firms is strict or the level of competition in the private sector is strong,
  nationalisation may promote greater inefficiency and costs to society than benefits
• Public private partnerships might be a better long term solution to maximise social welfare where
  resources are allocated at socially optimum levels with low prices due to government monitoring and
  control