Welfare effects of infrastructure privatization

Abstract

This paper deals with the welfare and long run allocation impacts of privatization. The results are obtained from simulations with a variant of the neoclassical growth model adapted and calibrated for the purposes of the analysis. In particular, it is assumed that public or private infrastructure provides positive external effects, but at different levels of quality. It is also assumed an economy initially on a steady trajectory with a benevolent government committed to maximizing the level of social welfare. The simulations indicate that the welfare net gains of privatization depend on the quality and quantity of the private infrastructure supply. Furthermore, those net gains are strongly related to the quality control of the new private infrastructure supply that emerges after the privatization policy.