Th3.6: Disadvantages of Nationalisation

Question 1

What are the three disadvantages of nationalisation?

Answer 1

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

Question 2

Principal-agent problem and moral hazard

Answer 2

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

Question 3

X-inefficiency

Answer 3

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

Question 4

Influenced by government’s decisions

Answer 4

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