Is privatization a panacea for LDCs? Market failure versus public sector failure

The purpose is to analyze the issue of privatization from the viewpoint of efficiency. The paper begins in the following section with a brief analysis of market failure and other motives for government intervention in production. The next section places the blame for public sector inefficiency on the absence of efficiency-promoting incentives, with particular attention paid to; the presence of multiple and conflicting goals, the lack of management independence, an inappropriate reward structure, and incentives even encouraging inefficiency. The paper returns to the private sector in the ensuing section to demonstrate that such disincentives are less common there. The penultimate section of the paper explores some of the meanings of privatization, and examines three from an efficiency viewpoint under the following circumstances; when a private monopoly replaces a public monopoly, when privatization occurs in the context of competitive markets, and when the government privatizes the delivery of a service but retains ownership and direction. The concluding and summary section suggests that the answer to the question: "Is privatization a panacea?' must be an equivocal "maybe.' -from Author