Choosing the extent of private partipation in public services: a computable general equilibrium perspective

Abstract

What determines the propensity to reduce or widen the extent of public ownership? Why has there been a propensity to privatize and concede public utilities in the nineties? The answers to these questions depend both on macroeconomic and microeconomic considerations. And correct answers could also help to avoid or prevent inefficient reversals and frustrations that jeopardize reform processes. An alternative perspective, that combines micro and macro arguments, is given by general equilibrium models. The objective of this paper is to explore the rationality of the decision of choosing in an endogenous way the implicit “technologies” of private and state owned operators of utilities in an economy that has fiscal budget and trade balance in equilibrium. The simulations confirm that the choice of the technology to be used for servicing infrastructure depends on deep parameters of efficiency and costs. The model shows that there are plausible scenarios where the selection is not all-or-nothing and that they can coexist.