On the performance of public enterprises: the choice of price and productive factors

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Virginia Polytechnic Institute and State University

The public enterprise sector has shown an increasing trend in many countries. As the public enterprise sector competes with the private sector for the limited resources, it becomes paramount to evaluate the effects of undertaking the productive activity under public ownership as opposed to private ownership. The scope of this dissertation is the economic efficiency of public enterprises.

The analyses attempt to identify the role of alternative institutional arrangements on the behavior of decision-makers. This attempt is based upon the proposition that differences in the underlying structure of property rights within firms affect systematically the choices of utility maximizing managers.

The economic efficiency of public enterprises is viewed from two perspectives. On the "demand-side" the pricing behavior of public enterprises is analysed by examining the impacts of public ownership on manager-politicians. On the "supply-side," the choice concerning the employment of productive factors is analysed by examining the impacts of alternative forms of property rights on the decision-makers involved. In both cases the analyses imply that the lack of an enforceable specification in the manager-voter contract regarding the performance of-public enterprises can lead to political manipulations of these enterprises which, in turn, can retard economic efficiency.