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The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly

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Abstract

Privatisation is driven by the belief that public ownership is cost inefficient, in particular under monopoly. However, some theoretical and empirical studies have questioned whether privatisation will necessarily lead to efficiency gains. This paper focuses on the impact of ownership when owners can be either active or passive. Active owners decide on output, whereas passive owners delegate this decision to a risk-averse manager. It turns out that managerial slack as reflected in the marginal costs will actually be the same or higher in a private monopoly than under public ownership. The impact of entry is theoretically ambiguous, but an increased number of firms in an oligopoly may lead to lower efficiency.

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  1. Department of Economics and Statistics, Åbo Akademi University, Fänriksgatan 3b, 20500, Turku, Finland

    Johan Willner

  2. Cranfield School of Management, Cranfield University, UK

    David Parker

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  1. Johan Willner
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Willner, J., Parker, D. The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly. J Econ 90, 221–253 (2007). https://doi.org/10.1007/s00712-006-0230-6

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  • DOI: https://doi.org/10.1007/s00712-006-0230-6

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