Volume 4, Issue 3

In a normative theory of decision making in the firm, limited cognitive capabilities of decision makers can be taken into account in different ways. If individual decision making alone is being considered, the concept of rationality must be defined in such a way that it is acceptable from the viewpoint of potential users of the theory. In an organizational context, normative theory deals primarily with the design of contracts; as far as the anticipation of the actual behaviour of contract partners is concerned an empirically valid descriptive decision theory is needed. A major problem which arises if one applies contract theory to problems of corporate governance is the definition of an adequate standard to evaluate the firm’s outcome periodically. Accounting profit and market value are two possible measures, but both have grave shortcomings.

German telecommunications reform came late because of high institutional constraints, powerful beneficiaries and reasonable functioning of the old system. It finally occurred because (1) the beneficiaries had less to lose, (2) Germany was falling behind, (3) reform was proven to work abroad and (4) the EC exerted pressure. The reform, particularly separation of posts from telecommunications, privatization of Deutsche Telekom and the creation of the RegTP, brought radical changes and the formation of new beneficiaries. The current sector crisis should spur research in the stability of competition in network industries and a reevaluation of the current reforms. Further reforms are required by new EC rules that will provide a more unified framework for the entire telecommunications sector. In the long run, privatization and liberalization will be completed, while some kinds of telecommunications-specific regulation will continue. Dominant firm regulation of end-user services is likely to be abolished down the road, while bottleneck regulation may persist. The remaining amount of dominant firm regulation and the pace of deregulation will depend heavily on market boundaries between (a) wireless and fixed networks, (b) high and low capacity subscriber access and (c) high-density and lowdensity networks. Assessing the interaction between market boundaries and market power requires economic research of intermodal competition and market power.

The Regulatory Authority can now look back on five years of liberalized telecommunications markets in Germany. This is an opportunity to recall the legislative rationale of liberalization and the regulatory instruments chosen, and to assess how the markets have developed. Aware that telecommunications were not one of the state’s core tasks and that there were obvious advantages to services being provided by private companies in a competitive environment, the lawmakers framed the conditions for competition in the provisions of the Telecommunications Act (TKG). In retrospect, these arrangements have largely proved their worth, even if the global economic crisis of the last two years has made itself felt in the telecommunications markets as well. Hence the forthcoming amendment should reflect the TKG’s pro-competition philosophy and seek only to improve upon the regulatory instruments where they have been found wanting.

The privatization process in Eastern Europe has not been a success everywhere. The opinion of experts about the optimal privatization strategy has changed over the last decade. This article first presents the theoretical foundation for privatizing state-owned enterprises. It then discusses the pros and cons of different privatization strategies. As the examples of the Czech Republic and Russia show, privatization does not lead to enterprise restructuring if it is not accompanied by institutional reforms. Empirical studies confirm that the effects of privatization are very different in different regions, mostly positive in MOE countries, but not always so in CIS countries.