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
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
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
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