privitisation

Question 1

What is the definition of privatisation?

Answer 1

• Replacing public ownership with a private one

- Or removing regulation and state control on economic activity

Question 2

What is the definition of a non-excludable good?

Answer 2

• No practical way of excluding individuals from using a good

Question 3

What is the definition of a non-rival good?

Answer 3

• An individual enjoying a good, doesn’t imply others cannot

Question 4

Is public transport non rivalrous?

Answer 4

• No because a user can occupy a bus or seat, and this would prevent another user from obtaining the good

Question 5

Is public transport non excludable?

Answer 5

• No: several ways to exclude those who do not pay from service, such as ticket controllers

Question 6

What is the rationale of a natural monopolist?

Answer 6

• Economies of scale is huge
• AC is assumed to be always decreasing
• Production by more than one firm will be inefficient: since it wont minimize total cost for a given quantity
• One firm would be able to exploit the EOS

Question 7

Should there be a single firm operating under Transport?

Answer 7

• There are cost/efficiency advantages in having a single firm providing all the service
• Timetabling: co-ordination of timetable and connections at key notes would reduce the time loss in travel in the whole economy as an whole

Question 8

Does the centralization (monopoly) depend on whether the ownership is public or private?

Answer 8

• No, it can be private or public

Question 9

What are the issues of having a natural monopoly?

Answer 9

• Market power: excessive mark-up due to no competition
• MC = MR and this would create huge profit margins for the monopoly?
• Draw the ar curve displaying profit
• Dynamic inefficiency: insufficient incentives to invest and innovate
• There are no competitors who could take over consumer demand

Question 10

What are the alternatives to public ownership: regulating private monopoly?

Answer 10

• Regulate tariffs
• Impose minimum level of service
• Impose a certain amount of investment

Question 11

What are reasons for public ownership?

Answer 11

• Large external benefits throughout the economy
• Productivity
• Environment and productivity
• Military and defence
• Long term goals: private, profit driven firms typically focus on short-term objectives

Question 12

What are the issues of public ownership?

Answer 12

• Cost: large amounts of capital are involved, burden to public finances
• Objectives: governments are not necessarily welfare maximisers  they make decisions based on political reasons
• Lack of competition: no need to push costs down due to the lack of the profit incesntive

Question 13

How was the state of railway ownership at 1948?

Answer 13

• There were 4 big private companies

Question 14

What did the government do to railways at 1948?

Answer 14

• They nationalized the railways
• Organised 6 geographical areas: east west northeast London south and Scotland
• Then investment were made in 1950 to expand the network

Question 15

What is beeching Axe?

Answer 15

• In 1960s many local services cut, and stations were closed

- Renamed British rail in 1965: to reduce high cost and government budget cuts

Question 16

What are the railways act in 1993?

Answer 16

• Splitting up British rail and sale to private companies
• Vertical separation: 25 train operating companies
• Franchise system was set up, split network in different areas and award each to a single TOC for 7-15 years
• Subsidies for socially valuable but not profitable

Question 17

What were a few issues faced immediately after privatisation in 1993?

Answer 17

• declining quality of service
• Reduced punctuality and reliability
• Due to insufficient investment rail infrastructure projects not rarely require very long-term investment
• Hatfield accident: poor maintenance was found to be the main reason

Question 18

What are the countermeasure the government devised in 2000 to deal with privatisation issues in 1993?

Answer 18

• Creation of strategic rail authority: increase in government funding of long-term investment
• An improved co-ordination of timetables and monitoring of safety

Question 19

What is the rationalisation of service franchises

Answer 19

• Reduce number, mergers to increase scale and make them more profitable

Question 20

What happened to fares after privatisation in 1993?

Answer 20

increase

Question 21

did the government achieve the object of making railway cheaper?

Answer 21

• Yes they spent 3.5£ per person in 1992 and they only pay 2£ at current prices

Question 22

What is the difference bwetween a public and private Monpoly

Answer 22

• There will be differing objectives
• Private owners are profit maximising: they would set high prices and would innovate
• Public owners: this would lookout in the tax-payers interest