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 80’s - 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 threeindependent entities though monopoly stuation at Dublin still apparent - no decision on building new terminal with private airportcompany 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 busesthrough 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