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Private Enterprise vs. Government Control: An Organizationally Dynamic Comparison

  • Pelikan, Pavel

    (Research Institute of Industrial Economics (IFN))

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    It is noted that modern economics cannot decide which economic system is the best way of organizing production. In particular, support is given to Nelson (1981) who claims that modern economics does not provide any substantial argument in favor of private enterprise being the best. However, rather than concluding that government control or socialist planning could do at least as well, this essay explores the alternative hypothesis that the organizationally static framework of most of modern economics is too narrow to see the entire truth. Connected to Schumpeter's and Hayek's approaches, an organizationally dynamic analytical framework is outlined and shown to reveal important advantages of private enterprise, in particular of contestable private enterprise with equitable risk assignment. This argument is qualified by showing that even such a system may suffer from organization failures which can be alleviated by selection-neutral industrial policy, including government entrepreneurship on underdeveloped markets.

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    File URL: http://www.ifn.se/wfiles/wp/wp137.pdf
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    Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 137.

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    Length: 70 pages
    Date of creation: Jan 1985
    Date of revision:
    Handle: RePEc:hhs:iuiwop:0137
    Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
    Phone: +46 8 665 4500
    Fax: +46 8 665 4599
    Web page: http://www.ifn.se/
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    1. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
    2. Demsetz, Harold, 1969. "Information and Efficiency: Another Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 12(1), pages 1-22, April.
    3. Winter, Sidney G, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 237-61, May.
    4. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
    5. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
    6. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
    7. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
    8. Richard R. Nelson, 1981. "Assessing Private Enterprise: An Exegesis of Tangled Doctrine," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 93-111, Spring.
    9. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
    10. Forte, Francesco, 1982. "The Law of Selection in the Public Economy as Compared to the Market Economy," Public Finance = Finances publiques, , vol. 37(2), pages 224-45.
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