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
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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
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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
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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
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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

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6
Q

What does nationalisation cause

A

natural monopolies

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