Th3.6: Disadvantages of Nationalisation Flashcards

1
Q

What are the three disadvantages of nationalisation?

A

principal-agent problem and moral hazard
X-inefficiency
influenced by government’s decisions

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2
Q

Principal-agent problem and moral hazard

A

nationalised industries suffer from the principal-agent problem and moral hazard as managers know that any loss they make will be covered by the government

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3
Q

X-inefficiency

A

they will experience X-inefficiency and this could cause higher prices for consumers, especially since the industry will become a monopoly

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4
Q

Influenced by government’s decisions

A

they will be influenced by the government’s decisions and the government may not have enough money to invest

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