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Corporatization and the Behavior of Public Firms: How Shifting Control Rights Affects Political Interference in Water Prices

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  • Michael Klien

Abstract

As an alternative to privatization, corporatization implies shifting control rights from politicians to managers—through the creation of a separate legal entity—while ownership remains with the government. Even though corporatized firms are fairly common, little empirical work has tried to quantify the effects of corporatizations. This paper tries to fill this gap by analyzing the effect of corporatization on the price-setting behavior of public firms. The theoretical prediction that corporatization decreases political interference in price setting is tested using a dataset of Austrian water providers. The empirical evidence largely corroborates this hypothesis. Specifically, the results show that the impact of electoral cycles and intense political competition on price setting is significantly restrained in corporatized firms. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Michael Klien, 2014. "Corporatization and the Behavior of Public Firms: How Shifting Control Rights Affects Political Interference in Water Prices," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 393-422, June.
    • Handle: RePEc:kap:revind:v:44:y:2014:i:4:p:393-422
    DOI: 10.1007/s11151-013-9401-0
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    Cited by:

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    2. Hans Pitlik & Michael Klien & Stefan Schiman, 2017. "Stabilitätskonforme Berücksichtigung nachhaltiger öffentlicher Investitionen," WIFO Studies, WIFO, number 60595, Juni.
    3. Andrés J. Picazo-Tadeo & Francisco González-Gómez & Marta Suárez-Varela, 2020. "Electoral opportunism and water pricing with incomplete transfer of control rights," Local Government Studies, Taylor & Francis Journals, vol. 46(6), pages 1015-1038, November.
    4. Klien, Michael & Michaud, David, 2019. "Water utility consolidation: Are economies of scale realized?," Utilities Policy, Elsevier, vol. 61(C).
    5. Michael Klien & Gerhard Streicher, 2021. "Ökonomische Wirkungen des gemeinnützigen Wohnbaus," WIFO Studies, WIFO, number 66962, Juni.

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    More about this item

    Keywords

    Corporatization; Control rights; Political interference; D22; D72; L33;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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