Privatisation

Question 1

What is privatisation?

Answer 1

when state-run organisations/activity is sold off to the private sector

Question 2

Why would government pursue privatisation?

Answer 2

private sector run firms far more efficiently (profit motive and competition)

Question 3

Advantages of privatisation?

Answer 3

• increase allocative efficiency
• decrease x-inefficiency
• efficiency incentive = dynamic efficiency

Question 4

Disadvantages of privatisation?

Answer 4

• loss making services cut even if allocatively efficient/socially desirable
• loss of natural monop / EOS (productive efficiency)
• ignore external costs

Question 5

Evals

Answer 5

• depends on level of competition within market
• depends on level of government regulation (ensure no local monopolies and more competitive outcomes or force firms to make socially desirable goods)
• other barriers to entry (deregulation)