ABSTRACT
In the 1980s the opinions of many economists began intensively to deviate from the Musgravian view which had long been prevalent in public economics. The allocation of resources became the field of central interest. Internal subsidisation in public enterprises was increasingly considered undesirable, as was any form of pricing with redistributive features. Furthermore stabilisation by public enterprises fell into disapproval. Monetary policy of the Friedman type was recommended as more appropriate for the achievement of the desired stable growth of an economy. Adherents to this view dismissed those distributional and stabilisational arguments in favour of public enterprises which had long been believed in theory and practice. With respect to the allocative justification of public enterprises, the natural-monopoly paradigm has been destroyed in the 1980s. Baumol and others1 stressed the contestability of enterprises which claimed to be natural monopolies, and this led to a careful reconsideration of the internal organisation of public enterprises. It became clear that typically only parts of production exhibit those cost advantages which prevent them from being contestable. Consequently, public utilities may be disintegrated either vertically or horizontally, with possible privatisation and market entry in those parts whose market position is contestable.
