Infrastructure and Public Utilities Privatization in Developing Countries. The World Bank Economic Review

The paper analyzes governments ’ trade-off between fiscal benefits and consumer surplus in privatization reforms of non competitive industries in developing coun-tries. Under privatization, the control rights are tranfered 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 high profitable public utilities, the combination of allocative inefficiency and critical budgetary con-ditions 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