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THEORIES OF REGULATION

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Presentation on theme: "THEORIES OF REGULATION"— Presentation transcript:

1 THEORIES OF REGULATION
Public Interest Theory intervention in case of - monopoly - externalities - provision of public goods - imperfect information Private Interest or “Capture” Theory - assymetrical gains and losses from regulation - favouring organised interest groups Regulation as Taxation - aimed at achieving better income distribution than permitted by market economy General Theory - takes political view with regulator acting as vote maximiser; however fails to address bureaucratic type appointments

2 THREE TYPES OF REGULATION
Rate of Return Regulation - especially relevant in US - can be inefficient and punish incentive Price-cap Regulation - used in UK starting in 80’s - inflexible system price can be subject to frequent review Franchise Bidding and Regulation - difficulties with length of contract - proposed for deregulation of bus services in Dublin

3 DEREGULATION State Sector – civil service, Gardai, education, local authorities, health boards, commercial state sponsored bodies and non-commercial bodies Increasing competition often associated with legal enforcement (i.e. competition policy) Privatisation (whole or in part) Subcontracting of non-essential activities to specialist providers Introduction of charging system for former “free” services Reorganisational changes with a view to increasing efficiency

4 PRIVATISATION AND DEREGULATION
Regulation of Monopolies - greater supervision and accountability - setting maximum prices Exposure to International Competition Breaking Monopoly into Component Parts - enables greater efficiency - some divisions can be subject to competition Opening up Infrastructure to Outsiders - e.g. telecommunications, electricity grid Enforcing Competition Regulations

5 PRIVATISATION AND DEREGULATION (con)
Major compoonents of privatisation Introduction of charges - i.e. where service previously provided free of charge Contracting Out - privatisation of certain services that continue to be financed by the public sector e.g. in health sector Full Privatisation - selling off of public companies Deregulation and Liberalisation - e.g. airlines and communications

6 NATIONALISATION AND PRIVATISATION
Reasons for Nationalisation Political Philosophy Social and Historical Economies of Scale Externalities Failure of Private Sector

7 NATIONALISED INDUSTRIES
Financial - setting targets - measuring performance - capital investment Pricing Issues - elasticity considerations - peak pricing - marginal cost pricing - cross subsidisation Investment Analysis - financial implications - cost benefit analysis

8 NATIONALISED INDUSTRIES (con)
Existence in: Transport – air, bus, sea, rail etc. Energy – electricity, oil, gas, coal, turf etc. Posts and Telecommunications Other – e.g. steel, food

9 PRIVATISATION Arguments for: Market forces - efficiency
- splitting into separate companies - competition for private finance - influence of shareholders Reduced Government Interference - clear objectives - freedom from government influence Financial - current revenue - capital revenue - elimination of need for subsidisation

10 PRIVATISATION (con) Possible Problems
- loss of social ethos and consideration of externalities - loss of profit revenues - need for government intervention in case of difficulty

11 STATE COMPANIES • Irish Shipping - closed down in 1982 • B and I Line
- sold off a number of years ago NET - former state fertiliser company that has been sold to private sector • Irish Steel Holdings - sold to Ispat Whitgate refinery - sold to private company Tosco in 2001 Bord na Mona - a public limited company since 1999

12 STATE COMPANIES (con) • Greencore - first to be privatised (1991)
• Irish Life - raises additional issues (part privatisation and golden share) Bord Gais - management in favour of privatisation but no decision taken by government - need to increase source of supply e.g. interconnector to Scotland and Corrib gas field Aer Lingus - though state owned is now run in fully commercial manner - set for part privatisation this summer though serious issues remain with date still in doubt

13 STATE COMPANIES (con) Aer Rianta - still state owned
- Government has now split company into three independent entities though monopoly stuation at Dublin still apparent - no decision on building new terminal with private airport company in competition Eircom - has been privatised by degrees with part sale (15%) followed by total sell-off - since then private company has been split in two with mobile phone division taken over by Vodaphone competition in mobile phone area; however fixed line transmission still a monopoly though infrastructure has been deregulated allowing competition through lease line operators - proposal now for take over of Eircom by a venture capital company (Babcock and Brown)

14 STATE COMPANIES (con) • ESB - still a state owned monopoly
- though deregulation is encouraged in practice little competition has emerged - special regulator set up for industry (as in communications) who seems to favour company's agenda CIE - comprises three companies, Dublin Bus, Bus Eireann and larnrod Eireann - government trying to bring in more competition for buses through tendering 25% of new routes in Dublin - no competition likely in rail sector An Post - another state monopoly and likely to remain so in near future - main competition coming from technological developments in communication

15 STATE COMPANIES (con) ACC Bank
      - business bank now sold off to Dutch company in state sector (ICC sold off to Bank of Scotland)                    VHI - market for health insurance has now been deregulated – two competitors in market • Others - e.g. Coillte


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