Infrastructure and public utilities privatization in developing countries

The paper analyzes governments'tradeoff between fiscal benefits and consumer surplus in privatization reforms of noncompetitive industries in developing countries. Under privatization, the control rights are transferred to private interests so that public subsidies decline. This benefit for tax-payers comes at the cost of price increases for consumers. In developing countries, tight budget constraints imply that privatization may be optimal for low profitability segments. For highly profitable public utilities, the combination of allocative inefficiency and critical budgetary conditions may favor public ownership. Finally, once a market segment gives room for more than one firm, governments prefer to regulate the industry. In the absence of a credible regulatory agency, regulation is achieved through public ownership.Economic Theory&Research,Public Sector Economics&Finance,Privatization,Markets and Market Access,State Owned Enterprise Reform

Privatizations in developing countries and the government's budget constraint

In this paper, we study the impact of government's budget constraint on the optimal industrial policy in industries with increasing returns to scale. We show that privatization is preferred to regulation for intermediate values of the shadow cost of public funds (i.e., the Lagrange multiplier of the government's budget constraint). However, the advantage of privatization is likely to disappear once the product market allows the entry of more than one firm.In this paper, we study the impact of government's budget constraint on the optimal industrial policy in industries with increasing returns to scale. We show that privatization is preferred to regulation for intermediate values of the shadow cost of public funds (i.e., the Lagrange multiplier of the government's budget constraint). However, the advantage of privatization is likely to disappear once the product market allows the entry of more than one firm

A Theory of BOT Concession Contracts

In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and firm managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-o¤ between the government’s shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period. The incentives to choose BOT concessions increase as a function of ex-ante informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession cost characteristics to public firms at the termination of the concession

Quality Signaling through Certification in Developing Countries

This paper studies how signaling the credence attributes of consumer goods distorts their market equilibrium in developing countries. Costs of certification, sunk in order to achieve credibility, play a key role in producing an oligopolistic market, leading to high prices that form a barrier for consumers in the South. To lower the cost, certification is better achieved by a single independent body which can be financed either by end consumers, through a fee, or by public subsidies. The paper identifies the conditions under which each funding mechanism is most efficient, taking into account the government's budget constraint. The theoretical analysis is motivated with reference to agricultural seed certification