From Government to Regulatory Governance: Privatization and the Residual Role of the State

32 Pages Posted: 3 Jan 2006

See all articles by Bernardo Bortolotti

Bernardo Bortolotti

Bocconi University; University of Turin

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Date Written: December 2005


This paper reviews the state of thinking on the governance role of public ownership and control. We argue that the transfer of operational control over productive assets to the private sector represents the most desirable governance, due to the inherent difficulty for citizens to constrain political abuse relative to the ability of governments to regulate private activity. However in weak institutional environments the process needs to be structured so as to avoid capture of the regulatory process. The speed of transfer should be timed on the progress in developing a strong regulatory governance system, to which certain residual rights of intervention must be vested. After all, what are "institutions" if not governance mechanisms with some degree of autonomy from both political and private interests? The gradual creation of institutions partially autonomous from political power must become central to the development of an optimal mode of regulatory governance. We advance some suggestions about creating accountability in regulatory governance, in particular creating an internal control system based on a rotating board representative of users, producers and civil society, to be elected by a process involving frequent reporting and disclosure.

Keywords: Regulatory Governance, Privatization

JEL Classification: G38, L53

Suggested Citation

Bortolotti, Bernardo and Perotti, Enrico C., From Government to Regulatory Governance: Privatization and the Residual Role of the State (December 2005). FEEM Working Paper No. 151.05, Available at SSRN: or

Bernardo Bortolotti (Contact Author)

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136

University of Turin

Via Po 53
Torino, Turin - Piedmont 10100

Enrico C. Perotti

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

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