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State Versus Private Ownership

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  • 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, many of the concerns that private firms fail to address "social goals" can be addressed through government contracting and regulation, without resort 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.

Suggested Citation

  • Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
  • Handle: RePEc:fth:harver:1841
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    More about this item

    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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