THEORIES OF REGULATION

1
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

2
THREE TYPES OF REGULATION

• Rate of Return Regulation
• - especially relevant in US
• - can be inefficient and punish incentive
• Price-cap Regulation
• - used in UK starting in 80s
• - inflexible system price can be
  subject to frequent review
• Franchise Bidding and Regulation
• - difficulties with length of contract
• - proposed for deregulation of bus services in
  Dublin

3
DEREGULATION

• State Sector civil service, Gardai, education,
  local authorities, health boards, commercial
  state sponsored bodies and non-commercial bodies
• Increasing competition often associated with
  legal enforcement (i.e. competition policy)
• Privatisation (whole or in part)
• Subcontracting of non-essential activities to
  specialist providers
• Introduction of charging system for former free
  services
• Reorganisational changes with a view to
  increasing efficiency

4
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

5
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

6
NATIONALISATION AND PRIVATISATION

• Reasons for Nationalisation
• Political Philosophy
• Social and Historical
• Economies of Scale
• Externalities
• Failure of Private Sector

7
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

8
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

9
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

10
PRIVATISATION (con)

• Possible Problems
• - loss of social ethos and consideration of
  externalities
• - loss of profit revenues
• - need for government intervention in case of
  difficulty

11
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

12
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

13
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)
•  

14
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

15
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