Why did Mexico not privatise the electricity sector? - an application of prospect theory

Between 1982 and 2003, as part of an ambitious programme of market reforms, the total number of state-owned enterprises in Mexico was cut from 1,155 to 210. Despite this, the country’s energy sector, including the electricity industry, has largely remained in state hands. Presidents Ernesto Zedillo and Vicente Fox presented their projects to privatise the Mexican electricity industry (MEI). However, they were unable to reach agreements with key political players to carry out this strategy. This thesis explores the underlying reasons for this “non-privatisation” by applying the most important behavioural theory of choice under risk, Prospect Theory (PT). The thesis hypotheses that privatisation of the Mexican electricity industry was not implemented because there were specific conditions that led decision-makers to behave in a risk-averse way. For instance, the privatisation of the MEI is more likely to occur in conditions of a severe crisis in that sector, and that these conditions have yet to occur. This hypothesis draws on psychological arguments derived from PT, which explore behaviour in terms of risk aversion in the domain of gains and risk-seeking in the domain of losses. According to PT, people tend to opt for risky choices when they are experiencing losses. On the other hand, people behave in a very cautious way when they see themselves in the domain of gains. The research offers evidence that the decision-makers involved in the debate of the electricity privatisation projects were in the domain of gains and therefore they did not implement the privatisation. In this way, the thesis offers a new perspective for understanding the political dynamics of the privatisation proposals. The thesis also makes important contribution to empirical knowledge, offering original insights that cannot be provided by other theoretical frameworks such as rational choice theories. Moreover, the thesis offers an interesting analysis of different economic, social and political factors. This provides key information that is used in a context that supports our PT application. For instance, we study the partial participation of the private sector in the MEI and reviewed historical events that strongly influenced the country’s economic and social development.

Name dc:type.qualificationname

phd

Level dc:type.qualificationlevel

doctoral

Grantor dc:publisher.institution

University of East Anglia

Year dc:date.issued

2013

Author dc:creator

• Resendiz-Silva, Jesus G.

Language dc:language

en