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

1.

THREE TYPES OF REGULATION

Rate of Return Regulation -

especially relevant in US - can be inefficient and punish incentive

2.

Price-cap Regulation

- used in UK starting in 80’s - inflexible system price can be subject to frequent review

3.

Franchise Bidding and Regulation

- difficulties with length of contract - proposed for deregulation of bus services in Dublin

•

DEREGULATION

State Sector – civil service, Gardai, education, local authorities, health boards, commercial state sponsored bodies and non commercial bodies 1.

Increasing competition often associated with legal enforcement (i.e. competition policy) 2.

Privatisation (whole or in part) 3.

Subcontracting of non-essential activities to specialist providers 4.

Introduction of charging system for former “free” services 5.

Reorganisational changes with a view to increasing efficiency

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

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

NATIONALISATION AND PRIVATISATION

Reasons for Nationalisation • Political Philosophy • Social and Historical • Economies of Scale • Externalities • Failure of Private Sector

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

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

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

PRIVATISATION (con)

• Possible Problems

- loss of social ethos and consideration of externalities - loss of profit revenues - need for government intervention in case of difficulty

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

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

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)

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

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