THEORY OF PRIVATIZATION

Abstract

The article presents the theoretical basis for privatisation. The vast jumble of goods and services can be sorted
and classified according to two characteristics: exclusion and consumption. Goods and services are subject to
exclusion if the potential user of the goods can be denied the goods or excluded from using them unless he meets the
conditions set by the potential suppliers. The other relevant characteristic of goods and services has to do with
consumption. Some goods may be used or consumed jointly and simultaneously by many customers without being diminished in quality or quantity, while other goods are available only for individual (rather then joint) consumption;
that is, if they are used by one consumer, they are not available for consumption by other. Goods can be
classified according to the degree to which they possess these two properties. The result is four idealised kinds of
goods: individual goods (characterised by exclusion and individual consumption), toll goods (exclusion and joint
consumption), common-pool goods (nonexclusion and individual consumption), and collective goods
(nonexclusion and joint consumption).
The resulting classification determines the roles of government and of the nongovernmental (private) institutions
of society in supplying the goods and services. It examines the basic goods and services that people want and
need and discusses the intrinsic characteristics that permit them to be categorised usefully as private, toll, common-
pool, or collective goods. It clarifies the role of collective action in supplying each of these kinds of goods.