Researching public sector reform

Investigating efficiency and operation of public sector institutions.

Government representatives and experts on privatization from 63 countries addressed the topics of competition and regulation of privatized monopolies in an UNCTAD "Working Group on Comparative Experiences with Privatization" in December 1993. The findings were that competition is as important as regulation in promoting the efficiency objectives of privatization. In a competitive market, competition is also the best regulator. However, in a monopoly situation, regulation is necessary to protect consumer welfare and serves as a substitute for competitive pressure.

With privatized monopolies, preference should be given to competition wherever feasible in order to enhance efficiency. However, competition may be impeded by monopolistic market structures and restrictive licensing policies. It is therefore essential to promote a pro-competition legal framework. With regard to the special case of public utilities, contestable sectors could be separated from those displaying natural monopoly characteristics and the former exposed to competition.