Free Lunches in the Case for Privatisation and Deregulation

Free lunches arise when benefits of public or private organizational forms are estimated without regard to the associated costs. Two forms of the free lunch fallacy are prevalent in the literature on privatisation and deregulation. First, transfers from employees and transfers associated with tax evasion are treated as if they are net gains. Second, the benefits of market discipline, arising from the threat of bankruptcy or takeover form a major part of the case for privatisation. However, the social costs of bankruptcy and of the operation of the market for corporate control are typically not taken into account.