Ownership Versus Environment: Disentangling the Sources of Public-Sector Inefficiency
An unanswered question in the debate on public-sector inefficiency is whether reforms other than government divestiture can effectively substitute for privatization. Using a 1981-1995 panel data set of all public and private manufacturing establishments in Indonesia, we analyze whether public-sector inefficiency is primarily due to agency-type problems or to the environment in which public-sector enterprises (PSEs) operate, as measured by the soft budget constraint and the degree of internal and external competition. The results, obtained from fixed-effects specifications, provide support for both models. Ownership matters because, for a given level of government financing or competition, PSEs perform worse than their private-sector counterparts. The environment matters because only PSEs which received government financing or those shielded from import competition or foreign ownership performed worse than private enterprises. The results suggest that the efficiency of PSEs can be increased through privatization, through manipulation of the environment, or through a combination of both approaches. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 87 (2005)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zvi Griliches & Jacques Mairesse, 1995.
"Production Functions: The Search for Identification,"
NBER Working Papers
5067, National Bureau of Economic Research, Inc.
- Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
- Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- Narjess Boubakri & Jean-Claude Cosset, 1998. "The Financial and Operating Performance of Newly Privatized Firms: Evidence from Developing Countries," Journal of Finance, American Finance Association, vol. 53(3), pages 1081-1110, 06.
- Robert H. Gertner & David S. Scharfstein & Jeremy C. Stein, 1994. "Internal versus External Capital Markets," NBER Working Papers 4776, National Bureau of Economic Research, Inc.
- John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
- Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
- Robert H. Gertner & David S. Scharfstein & Jeremy C. Stein, 1994. "Internal versus External Capital Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1211-1230.
- 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 1006-1038, October.
- Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
- Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
- 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 403-452, June.
- Funkhouser, Richard & MacAvoy, Paul W., 1979. "A sample of observations on comparative prices in public and private enterprises," Journal of Public Economics, Elsevier, vol. 11(3), pages 353-368, June.
- Pinto, Brian & van Wijnbergen, Sweder, 1994. "Ownership and corporate control in Poland : why state firms defied the odds," Policy Research Working Paper Series 1308, The World Bank.
- Pinto, Brian & van Wijnbergen, Sweder, 1995. "Ownership and Corporate Control in Poland: Why State Firms Defied the Odds," CEPR Discussion Papers 1273, C.E.P.R. Discussion Papers.
- Rafael La Porta & Florencio López-de-Silanes, 1999. "The Benefits of Privatization: Evidence from Mexico," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1193-1242.
- Rafael La Porta & Florencio Lopez-de-Silane, 1997. "The Benefits of Privatization: Evidence from Mexico," NBER Working Papers 6215, National Bureau of Economic Research, Inc.
- Rafael La Porta & Florencio López-de-Silanes, 1997. "The Benefits of Privatization : Evidence from Mexico," World Bank Other Operational Studies 11583, The World Bank.
- Claessens,Constantijn A.*Djankov, Simeon, 1998. "Politicians and firms in seven central and eastern European countries," Policy Research Working Paper Series 1954, The World Bank.
- Theodore Groves & Yongmiao Hong & John McMillan & Barry Naughton, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 183-209.
- Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
- Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 995-1025.
- Kikeri, Sunita & Nellis, John & Shirley, Mary, 1994. "Privatization: Lessons from Market Economies," World Bank Research Observer, World Bank Group, vol. 9(2), pages 241-272, July. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:87:y:2005:i:1:p:135-147. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If references are entirely missing, you can add them using this form.