By Zhang Yongsheng　

Date: 2004/12/07

Abstract:

Through case studies in public infrastructure, this paper works on the relationship between the market size, transaction cost, and division of labor, as well as the condition for marketization of public infrastructure. According to the principles of internalities/externalities, the easiness in clarifying ownership will decide the level of externality. The case study shows that this conclusion holds when the Smith condition is satisfied (market size determines division of labor). The full condition for marketization of public utilities is to satisfy Smith condition and easiness in defining the ownership. When this condition is not satisfied, as long as self-interested private entrepreneurs participate, it is possible to marketize the public utilities. The urban public utilities do not have to be invested only by the government.