1991-11-01

The Great Divorce - Ownership and Management 912628

Orthodox economic analysis indeed demonstrates that, where a good has a marginal cost that is insensitive to volume, only a monopoly is stable.
However, the further postulate animating public managements today, that a monopoly can increase its profits by holding the good off the market, is implausible with respect to a good that is perfectly perishable, e.g. the opportunity to traverse a highway. Thus a publicly-owned system may not, as is commonly supposed, be tolerant of bad management. In truth, the highway is sensitive to overloading: below the minimum speed, the flow is unstable. Therefore “fine tuning” of supply and demand is appropriate.
The assumption that public ownership demands public management is, then, to be rejected. It is shown that the public can let the management of the highway out to a profit-seeking concessionaire, who could be relied upon to raise charges sufficiently to prevent over-loading, without any risk of the capital assets being degraded.

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