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State versus Private Ownership Andrei Shleifer

State versus Private Ownership Andrei Shleifer. Presented by: Nancy Rich September 20, 2011. About the Author. Russian-American economist Corporate finance, economics of financial markets, economics of transition “Most Influential Economist in the World” – IDEAS/ RePEc. Overview.

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State versus Private Ownership Andrei Shleifer

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  1. State versus Private OwnershipAndrei Shleifer Presented by: Nancy Rich September 20, 2011

  2. About the Author Russian-American economist Corporate finance, economics of financial markets, economics of transition “Most Influential Economist in the World” – IDEAS/RePEc

  3. Overview • Private ownership is nearly always preferable to state ownership • Private ownership offers: • Incentives to innovate • Cost control

  4. State Ownership • Concern: Private ownership will not address social goals • Preferable in certain instances: • Opportunities for cost reduction that lead to non-contractible quality • Innovation is unimportant • Consumer choice is ineffective • Reputation mechanisms weak

  5. State Ownership • Examples: • Air Force One • Nationalization or heavy regulation during wartime

  6. Private Ownership Concerns about quality can be controlled with government regulation & contracts Competition between suppliers can control many issues

  7. Private Ownership • Areas where private ownership could succeed: • Schools • Prisons • Healthcare • Military & police

  8. Politics Public ownership is often to the politician’s benefit Bribes can influence either way Most extreme case: Communism

  9. Summary “Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong.”

  10. References State versus Private Ownership Andrei Shleifer The Journal of Economic PerspectivesVol. 12, No. 4 (Autumn, 1998), pp. 133-150 http://www.jstor.org/stable/2646898

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