Privatisation and Nationalisation Flashcards
1
Q
Advantages of Privatisation
A
- Greater competition reduces X inefficiency
- Managers become more accountable as they know poor performance will mean fall in profits
- Improves Government finances
- Firms can invest with certainty not worrying about government elections
- Reduces government interference with the price mechanism
- Workers will be more motivated as there is profit incentive
2
Q
Disadvantages of privatisation
A
- reduces positive externalities
- increases price so decreases consumer surplus
- If the market is a monopoly it is better to be government owned
- Some industries are necessary to be properly coordinated like water and electricity
- Less public interest
- Still a need for regulation
3
Q
Advantages of nationalisation
A
- reduces prices
- benefits social welfare and creates positive externalities
- Government guarantees minimum level service so all people can access it, reducing inequality
- Monopolies are better to be ran by the state
- Long term investments which improve quality
4
Q
Disadvantages of nationalisation
A
- Suffers from moral hazard and principal agent problem as managers know their losses will be covered
- No profit incentives to innovate
- Opportunity cost for government
- negative effect on government finances
- increased taxes
- X inefficiency
5
Q
Example of a public private partnership
A
Toll roads as private pays for construction of the road and receives revenue, but rents it to the public sector to manage and operate so it is done fairly
6
Q
What does nationalisation cause
A
natural monopolies