**Policy Research**

# **P1.bc Sector Management and Private Sector Development**

# WPS 864

TIhis paper - product of thlic Public Sector Management **and** Private Sector IDevelopmnicit Division, Counftr-y Econonics Depairtinrnt --- is part of' **a** latrgr cllort in **dte** deparuicnrnt to analyt/e **ric** n.,lations betcwen privatizalioni and rcgulation. (Copies of the piper arc available free hIor the World Banik, 18 1 8 H Street NW, Washinuton, DC 20-433. Plca'.e contlact Fist ina Madrot1a, **ro10m** N9-057. xteusNioni 38526 (April 1992, 44 pages).

M.any5 dcveloping countries **aic** co isid nring **Itic** privatization of public enterprise natural n-iionopolics -- niortopolics inl ciarge ol electric it, naturall gias, v ater and swr, aInid telcphoniic services If there is not already an apparatus or regulating p,riate monopolics, these coulitries face a difficult choicc: xhcither to continue letting inefficient public niterprises operate, to create a regul atorN apparatus, or io rpF l;ce pLubhlic monopolies with unrceulated private rnonopolics, Improving aliocalivc ciicicncy. thoughl not the only objective of reoul,ation, is cetrailiv an111 important one, and onc tlhat has rcceix ed a great deal ol attention Irom economists. In theory, regulating private niatural monopolies can improvc allocative el ficicncy. In, practice, sometimes **it** does, a-id somctimes **it** does not. So Bradburd tried to answver **two** (lucstions: I low grcal x ould lhc c tficieric v losses be. ii I any, if a public natural nonopolv were prnvati/L d and allowed to function ais **ant** unrgulated entitv'U H low mtuchI couid pcrfomancice be c'.pected to improve if lthc privati/ed natural monopol\ operated as a regulated lin!i' Bradburd argues that **thC** deadxxcighit losses front monopoly pricillng b unreglliated pliVdti/ed natural monoipolies are likelv to be irnodcst nldi 1r1x x e1l be our\kCighed **b%** 1iprox 11tIIs er in lteclih al H etici'n ie llso argucs that re- ulIalion is niot costlcss anIk ma\ **xclIl** tOster static andl dynamlic cIficicins losses roreaer than llhe d'ad\\dcishl 11hol opoly losses **iL** is ilitciidcd ) prevent.

But Bradburd also notcs ih:it rcd(uctioni ol allocative imel tiiciticv is only one ol secxc:dl objct cliv c> \l **i** eu lal oioll I I lieL _cXsC to0_ c **e Ia:.** n or' FficicnCx rovund **s** is \x cak . thcn much **_rFealtr_** at tention mlust be p lid to h ow- these other objectix es can _hcst be_ achie ved.

isiutoricall I. achieCx rig distributional Cqluit has been al importanilit o)jcctilxc ofi regulation. We **L\x** _c_ very littlc systematic krno\A ledgc about ijht &., lua; distributional conscqucnces of privati/al;otr an,,, dcregulation, so morc rcsearch **is needed.** ..\lolher ohjectix c oti ruldation cart be to help) rte **onfid;lince** in tllhe stabiilitx of th envi rolillent in xx Ich bu>iness act ixvitics take pilace. If 1nctrpric.eizs are **l)1iVat1i di** **_1'ed_ Unt'reu-** **_I_** _tucd_ in 111 clVilx (nmenlt in **%k** hlich propert\ riglhts arc n(ot secure, manae;;mnient is likel\ to take an c\uicolncl shotl-ltill **v icWx** oi **piOll I1** ia\imi/aotion, 'Ihe icniplirit "take thc moncx and ruin'' policies **\x il** icl(i all tCe undesir.btle dcadxx chlt lo;scs **ol fl** oto)poly and none of tlce benclit o Cl i 1- **_cW11e \_ ind** imrT3M0A; **9ckis1**

**The(( t%I' ResCarti Wor(kinES l'.1ipc 4U; r cx(II xIiii** .I](;II;(H itic SIic 1. **I \Vi** r {t!I;! **uin,cr** 1'T' **iii iwli' tnl Ai, ohic_\.. 1I ' 'cii i",** in cci **thei>** finding'. **i'ui** quickk~C **cti il C 1ijL,tIi;iiiin% at, Itthi:n** I **uh) tTlh. 1mdmaIr,. I riciI"Iii'OW 1,** cnnct!iSorTh in IhCCe pa **d** t 11 not'i> I cpiL **cxci!** Oft **II** : Bn P.i p.

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