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State versus Private Ownership

Author Info

  • Andrei Shleifer

Abstract

Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the 'dynamic vitality' of free enterprise. The great economists of the 1930s and 1940s failed to see the dangers of socialism in part because they focused on the role of prices under socialism and capitalism and ignored the enormous importance of ownership as the source of capitalist incentives to innovate. Moreover, the concern that private firms fail to address 'social goals' can be addressed through government contracting and regulation, without resorting to government ownership. The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.4.133
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 4 (Fall)
Pages: 133-150

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Handle: RePEc:aea:jecper:v:12:y:1998:i:4:p:133-50
Note: DOI: 10.1257/jep.12.4.133
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Find related papers by JEL classification:
  • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
  • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
  • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
  • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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  1. Henry Hansmann, 1996. "The Changing Roles of Public, Private, and Nonprofit Enterprise in Education, Health Care, and Other Human Services," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 245-276 National Bureau of Economic Research, Inc.
  2. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1997. "Privatizing Russia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522284, December.
  3. Sam Peltzman, 1994. "Political Economy of Public Education: Non-college-bound Students," University of Chicago - George G. Stigler Center for Study of Economy and State 108, Chicago - Center for Study of Economy and State.
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  7. Sam Peltzman, 1992. "The Political Economy of the Decline of American Public Education," University of Chicago - George G. Stigler Center for Study of Economy and State 78, Chicago - Center for Study of Economy and State.
  8. Cecilia Elena Rouse, 1998. "Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental Choice Program," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 553-602.
  9. Nicholas Barberis & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1995. "How Does Privatization Work? Evidence from the Russian Shops," NBER Working Papers 5136, National Bureau of Economic Research, Inc.
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  13. Eric A. Hanushek, 1996. "Rationalizing School Spending: Efficiency, Externalities, and Equity, and Their Connection to Rising Costs," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 59-106 National Bureau of Economic Research, Inc.
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  17. Coase, R H, 1974. "The Lighthouse in Economics," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 357-76, October.
  18. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  19. Caroline Minter Hoxby, 1996. "Are Efficiency and Equity in School Finance Substitutes or Complements?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 51-72, Fall.
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  22. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. " The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-52, June.
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  24. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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  26. Ehrlich, Isaac & Georges Gallais-Hamonno & Zhiqiang Liu & Randall Lutter, 1994. "Productivity Growth and Firm Ownership: An Analytical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 1006-38, October.
  27. Morten Bennedsen, 1998. "Political Ownership," CIE Discussion Papers 1998-17, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  28. Florencio López-de-Silanes, 1997. "Determinants of Privatization Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 965-1025.
  29. Victor R. Fuchs, 1996. "Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America," NBER Books, National Bureau of Economic Research, Inc, number fuch96-1, May.
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