Disadvantages of privatisation - Transportation

Published on the Sep 12, 2016 1 year ago by peppermint - End › Sep 19, 2016 1 year ago

Homework subject

Hi! There is something I'm having trouble understanding in my economics lesson. I would like to know the disadvantages of privatisation, especially in the transportation sector please.

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Any definition or example would be great, thanks!

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Posted on Sep 12, 2016

Hi! Well as you know most of transport provision has been privatised in the UK. Of course, there are some drawbacks to this, and some of the benefits that were expected did not appear.

Here are a few examples of disadvantages of privatisation in transportation:

  • Sometimes, private firms can ignore the externalities of transport. This can create allocative inefficiency, so government intervention will still be needed to prevent this.
  • Profit objectives could conflict with safety standards.
  • A lot of transport industries are natural monopolies because there are large economies of scale. Replacing a public monopoly with a private monopoly will no necessarily improve productive or allocative inefficiency, and may lead to higher prices. But splitting up a natural monopoly between several private firms may also reduce productive efficiency because smaller firms will not be able to maximise economies of scale.
  • Breaking up transport networks between multiple firms also makes transport less integrated.
  • There may actually be less investment, as some profits are paid to shareholders rather than reinvested. 
  • Privatisation has resulted in some unprofitable routes closing, for example in rural areas. This can damage local economies.

They need help!

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