Privatisations as price reforms: Evaluating consumers’welfare changes in the UK

BRAU, RINALDO;FLORIO M.

2004-01-01

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Abstract

This paper analyses the effects on consumers' welfare of the privatisation policy carried out in the UK since 1979. The approach we follow evaluates the privatisation of a State owned enterprise within the broader framework of the "policy reform" theory (DREzE and STERN [1990]). By adopting this perspective,the change in consumers' welfare "with" and "with­ our privatisations can be studied by appropriate welfare measures. We claim that an advan­tage of our approach is that of being able to provide the required welfare assessment in a sim­plified way by means of a limited set of information.In particular, we show that a series of wel­fare measures only based on aggregate information can be used where one accepts the use of first and second order approximations and a few "reasonable" assumptions on the shape of demand functions. These welfare measures are subsequently used for the evaluation of the welfare effects related to price variations in seven British privatised public utilities. We conclude that the contribution to consumers' welfare of the privatisation policy in the UK, when compared to the huge transfers involved in the process, has been rather modest.