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Privatization, Public Goods, and the Ironic Challenge of Free Trade Agreements

Georgetown University Law Center, Washington, D.C

Mildred E. Warner

Cornell University, Ithaca, New York

Use of quasi-markets for provision of public goods requires clear property rights, a predictable adjudication process, and low transaction costs. These may be undermined by new restrictions on government action found in the new generation of free trade agreements. These trade agreements privilege foreign over domestic investors, replace public courts with private arbitration, supplant traditional standards for legislation by requirements to be "least trade restrictive," and forward a new definition of "takings" that requires governmental compensation for lost potential profits from regulatory action. These features undermine the governance structure necessary to reduce transaction costs of delivering complex public services through private contracts.

Key Words: local government • privatization • free trade • partial takings • property rights • transaction costs

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