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

THREE TYPES OF REGULATION

1. 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