Public utilities are ineffifcient, expensive, and not beneficial in any way. Therefore, I was wondering why we still have them in many states. Or worse, why are they granted a monopoly in certain states against private corporations who want to provide utilities?
They're typically providing a public good, with high fixed costs guaranteeing the need for monopoly power (which will assuredly lead to a deadweight loss if private enterprise were allowed to dominate)
Yes, but what is the advantage of having public utilities? The prices are much higher yet there is no money made off it and put back into the government. What's wrong with private enterprise? Are you a communist or something?
I've already told you: providing a public good, with high fixed costs guaranteeing the need for monopoly power (which will assuredly lead to a deadweight loss if private enterprise were allowed to dominate) Nope. Its also a strange question as my response is taken from orthodox economics
Good, as in product right? Becuase if that's the case a private company can still provide the same products at a lower price than a publicly funded one. I live in a place with public utilities and the electricity bill here is rediculously high compared to the bill in places like Texas with private utilities.
A public good is an economic good which exhibits non-rivalry and non-excludability characteristics. Could you back that up with empirical evidence? We of course have to note that, where monopoly power is significant, there is considerably expense in regulation of prices That would be an example of tabloidism. Can you refer to an empirical study that shows lower utility prices from private provision? It would be a strange claim given prices are typically constrained by regulatory frameworks and the lack of competition eliminates standard market force argument.
I live in a place that once had reasonable prices for power and water that were state-owned utilities. There was a governmental change and the utilities were privatised. Prices went through the roof. We're about third highest in the world now. I realise that international comparisons are difficult, due to variables, but historical changes are not difficult. Here privatisation meant higher prices. The conservative idiots who privatised utilities were booted out of government and don't look like coming back anytime soon, thankfully. A bit of detail. My state is big and sparsely populated. Population density is 1.67/km2 (4.3 /sq mi). How the hell anyone could think privatisation would work in this State is beyond me. A triumph of ideology over anything approaching common sense.
Okay, first of all this seems to be a nice, unbiased article on the privatization of utilities: http://suite101.com/article/privatization-versus-stateownership-a128631 First, with Diuretic... Well, I cannot answer this without a bit more information about the situation: a. Did the privatization happen with a failing infrustructure to transport the goods? b. Was the privatization subsidized (Not that I believe in subsidies) c. Was there just one company (monopoly) Now Reiver: It's not an economic good at all. Public utilities -> Higher taxes -> Higer Electric/Water bills -> etc. Non-rivalry? What's wrong with rivalry? Non-excludability? What kind of buisiness person would exclude someone from their services? There is, of course the forementioned http://suite101.com/article/privatization-versus-stateownership-a128631 which gives evidence for privatization. Of course the article also states the bad part of privatization: prices going through the roof as a result of monopoly, which of course should be prevented through the use of anti-trust. Also, I know someone who used to live in Texas (which is why I used that state in the first place) and he said that while he used lots more electricity, his electric bill was about a fourth of what is is in Florida. - - - Updated - - - Are you sure you understand what we're talking about? If you're a "Conservative who leans Libertarian" how on earth can you want government-controlled electricity, water, and telecommunications?
Its a secondary source of no value. You'd get better essays from high school students on the subject. Key goods are provided. Its not cunning to suggest otherwise. The impact on tax is ambiguous. A profit can be derived, but we'd expect some tax repercussions to ensure optimal provision (and improvements in equity). You're therefore actually referring to a benefit of public provision. The problem is that you don't understand the Econ 101 issues needed to understand this issue. I strongly suggest that you educate yourself what a "public good" means. You'd then be in a better position to make an informed conclusion.
stephenmac: a. Did the privatization happen with a failing infrustructure to transport the goods? b. Was the privatization subsidized (Not that I believe in subsidies) c. Was there just one company (monopoly) Fair enough you don't have enough info about the situation in my state and I don't expect you to engage on it. I pointed out the experience here because it was so illogical for our then state government to have done what it did. It acted purely on ideology and because we're so bloody stupid when they promised us lower costs for utilities we actually voted them into office! I was trying to get at the fact that this is a big and very empty state. Our state capital is about 1.1m about the size of San Diego. The total population of the state is 1.6 m. I don't know if that actually provides a sufficient size market for any sort of competition among private providers. A state monopoly would be - in fact was - beneficial. While the utilities were state monopolies they were run as public goods. There was no need to generate (ahem) profits, just to ensure that utilities paid for themselves and had a bit in the kitty for infrastructure and what have you. Anyway, to your questions. The infrastructure was actually pretty good. Getting power to most of the state was and is a huge undertaking. Imagine a state bigger than Texas but smaller than Alaska and with a population density similar to Nevada. I don't think that a private company could build that infrastructure today and still remain viable. Just as an aside, my state is the only state or territory in Australia that was actually created by private enterprise, the rest of them *sniff* were penal colonies. No subsidies. No monopoly, there were and are quite a number of providers (they buy the power from a single generating company and sell it to consumers). It's a dog's breakfast. In short where I live utilities should be a public good. And I have yet to read a convincing argument for utilities to be in private hands.
What makes you think the state owned utility cost any less? Is it possible your cost was subsidized by taxes.
How much profit do you think companies make? 30% would be a stunning profit, probably more like 5% to 10%. Not much impact on your bill. In the US, electrical utilities are required to provide energy from renewable sources, which are more expensive. Many have to pay customers with solar retail rates for power, put 1MW into the grid, and use 1MW, pay $0 for electricity. With the rates as high as you say, I'll bet many homes have installed panels - that reduces the number of paying customers.
Installing panels is a costly exercise. We typically see subsidies, again illustrating the problems inherent in private company provision
let's see I seem to remember the public companies control huge price fluctuations like you seen with oil during Katrina
Maybe in your part of the world. Here, the electric bill is high enough that I can buy 6KW system on credit, and with the same monthly payment, pay them off in 5 years (the 30% subsidy doesn't quite offset the 31% tariff). Or, I can contact any of the companies that will install a system for free, and bill you for the electricity.
We have high fuel poverty so you're on a loser there. That government subsidies are crucial, correcting for a form of market failure, is pretty obvious.
You have fuel poverty, and I can install solar at virtually no cost - who is the loser? "Government subsidies" are nothing but robbing Peter to pay Paul.
I'm merely referring to the reality of the situation. There is underinvestment in green technologies and there are huge well-being costs from the failures to regulate private company. As I said, your line of argument has actually strengthened the argument in favour of public provision
Exactly. There's no way you were paying less for public utilities... unless you don't pay taxes. @Reiver: I'm still unclear about why public utilities need a monopoly. If they are subsidized by taxes and are a public good why would there need to be a monopoly, unless it's more expensive. That brings me to another point: private utilities are cheaper as a result of competition even though they are not "public goods".
Its the form of public good, with a result closer to a natural monopoly (i.e. increased importance of economies of scale and therefore an inability to derive competition). A public monopoly will almost always out-trump a private oligopoly, given the failures of regulatory frameworks to control for quality and price. Care to support that with empirical evidence (i.e. avoid tabloidism)?
So we need a government monopoly, because government regulation failed? Even an oligopy consisting of 2 companies, provides competitive pressure on price. Any monopoly, has none, make it a government monopoly, and none can even breach the barrier to entry. Why do you have this huge bias toward government? What checks and balances do you think exist?
Its a basic asymmetric information problem. No it doesn't. Oligopoly is characterised by sticky prices and of course tacit collusion. In only a very unrealistic and irrelevant circumstance here (as shown by the stackelberg paradox) does competitive pricing develop. The barriers to entry are created through economies of scale. An aspect that encourages the efficiency of monopoly. I have no bias towards government (as shown by my market socialist stance which is focused on minimising government interventionism). I'm just not utopian about these things.
Try http://www.washingtonpolicy.org/publications/brief/problem-power-public-threats-private-utilities That, of course, goes back to the idea that regulations improve quality and price. This of course, is another topic but I did not say that I support a private oligopoly over a regular free market with anti-trust in place. That is the only regulation I believe in and as long as that's in place, price and quality should not be an issue. How can you say that "a public monopoly will almost always out-trump a private oligopoly" when there's evidence against it. For example, according to the Energy Information Administration, the average price for electricity per kilowatthour was 15.82 cents in connecticuit and 12.52 in california. But, in Georgia it was 8.71 cents and it was 8.21 in Texas. Tell me there's no correlation.
A poor source. Its an opinion piece, not an empirical study. Its also awkward for our discussion. It refer to deregulation, when you're actually asking for the replacement of public provision with regulated oligopoly. You're either going to deliver insufficient regulation (with the problems associated with market power maintained) or a bureaucratic lovefest. Which is supported by the evidence. A claasic example is the minimum wage, found to increase wages and productivity. That's still pertinent here as those effects refer to reducing the negative effects from market failure. See above! Regulation of these oligopolies either leads to insufficient consumer protection (see, for example, the rapid rise in British fuel poverty) or substantial regulatory costs. Its simple application of economies of scale and bureaucracy costs (accentuated by asymmetric information that makes it exceedingly easy for these oligopolistic firms to exploit their market power) You're not providing anything that can be used to support your argument. At the very least you should be referring to some sort of input-output efficiency analysis (such as DEA). Even then you have to be careful and provide a dynamic analysis into private/public behaviour. For example, a private firm is more likely to aggressiively follow objectives consistent with enhancing shareholder value. That will often be to the detriment of cost efficiency (given the use of cost-plus pricing)
