Projects
February 2006 / July 2008

Understanding Privatisation Policy: Political Economy and Welfare Effects - UPP

Privatization is one of the main events of the economic history of the last decades. The privatization record to date is impressive, both in developed and developing economies. Despite the relevance of the process and the extensive research recently carried out, several aspects of privatization such as its determinants, methods, and economic and social implications warrant a systematic analysis and research efforts.

Privatization is one of the main events of the economic history of the last decades. The privatization record to date is impressive, both in developed and developing economies. Despite the relevance of the process and the extensive research recently carried out, several aspects of privatization such as its determinants, methods, and economic and social implications warrant a systematic analysis and research efforts. Given the relevance of privatization policy in the European context and in the markets for the services of general interest (SGI), it is imperative to analyse the record of privatization and understand the causes behind failures in order to improve the process in the future.

The gradual shift from State to private ownership of productive assets has been a distinguishing phenomenon occurring in the last two decades in several European countries, and the cornerstone policy of the transition to a market economy in virtually all new accession countries. A thorough investigation of why and how governments have privatized SGI, and to what extent privatization yielded the desired outcomes in terms of competitiveness, economic growth and social progress is key to design future privatization processes and complementary policies, including liberalisation and regulation. The research output of the project has tackled the different aspects in sequence.

Main Results and Outputs

The Project results have been exploited to strengthen the scientific knowledge bases of policymaking in the critical area of privatisation, with special reference to SGI. The research outputs will be used to develop a coherent set of policy recommendations to foster on the one hand the effective deployment of SGI, and on the other one to promote economic and financial integration between European countries. We believe that a proper understanding of the relationship between privatisation, liberalisation and regulation can greatly help to achieve the long term goals of the European Union.

The Project’s first objective was to study the political and institutional incentives and constraints affecting privatisation, namely:

  • analyses of the link between electoral rules, political orientation and privatisation activity;
  • studies of the political economy of privatisation and regulatory reform covering the evolution, the sectoral breakdown and the methods of privatisation processes.

The Project’s second objective is to analyse the interactions between private and public ownership and control of firms, especially referring to regulated markets. More particularly:

  • a framework to evaluate the trade-offs between private and public ownership;
  • empirical analyses on the evolution of ownership and control structures of privatised firms assessing the impact of changes of ownership structure on firm value;
  • empirical analyses on the different patterns of ownership and control as compared with the level of divesting government (central, intermediate, local).

The Project’s third objective was to evaluate the effects of privatisation policies on several stakeholders, such as:

  • consumers, analyzing empirically the impact of privatisation and regulation of public utilities on individual and household welfare;
  • taxpayers, studying the role of privatisation in stabilizing the current budget and in maintaining fiscal balance;
  • shareholders, evaluating the stock market performance of European listed privatised firms;
  • employees, analyzing the long term effect of privatization on employment levels and wages.

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