IDEAS home Printed from
   My bibliography  Save this paper

Public enterprises, policy adoption and planning: three welfare propositions


  • Chiara F. DEL BO


  • Massimo FLORIO



Public enterprises are production units of goods or services under government control. In spite of wide privatizations in the last two decades, public provision in this form can be observed in many countries and sectors, particularly in education, health, transport, energy and environment. This paper uses social Cost Benefit Analysis (CBA) theory to explore the rationale for public enterprises. Three welfare propositions arise from CBA theory in a general equilibrium setting: (1) Under symmetric information and benevolent government, public provision is socially beneficial if: (a) there is a well defined production plan for some goods; (b) optimal policy and socially desirable projects are selected in such a way as to pass a social cost-benefit test at shadow prices; (c) production can never be shut down for some socially desirable goods and optimal procurement is equivalent to public production. (2) Under not (fully) benevolent government, and asymmetric information: (a) sub-optimal policy adoption leads to inconsistency in project selection; (b) the allocation of property rights will also be distorted, as privatization or government ownership are signals fixed by the government; (c) public provision and public procurement will be no more equivalent, because fo differences in information costs. (3) If the social planner is not fully benevolent, but cannot profit from policy design: (a) shadow prices are still sufficient statistics for the evaluating changes of the public plan; (b) public enterprises will be welfare superior to privately-owned enterprises (POEs) when the rents of the planner related to public ownership are less than the rents of the private providers under procurement, and shadow prices must be used to compare the outcomes. The message of the paper points to the overall quality of institutions as a pre-condition for socially desirable public enterprises as this environment provides policy-makers with the correct incentives to design and implement meaningful policies even when public administrators adopt sub-optimal plans. Hence, the building of a sound quality of institutions should be primarily focused on those mechanisms that select policies. Institutions should constrain self-interested policy-makers from disrupting the welfare signals for policy adoption as well as for project appraisal.

Suggested Citation

  • Chiara F. DEL BO & Massimo FLORIO, 2011. "Public enterprises, policy adoption and planning: three welfare propositions," Departmental Working Papers 2011-28, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2011-28

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-287, October.
    2. Laffont,Jean-Jacques, 2005. "Regulation and Development," Cambridge Books, Cambridge University Press, number 9780521840187, March.
    3. Lidia Ceriani & Massimo Florio, 2011. "Consumer surplus and the reform of network industries: a primer," Journal of Economics, Springer, vol. 102(2), pages 111-122, March.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Santiago Lago-Peñas & Jorge Martinez-Vazquez (ed.), 2013. "The Challenge of Local Government Size," Books, Edward Elgar Publishing, number 15294.

    More about this item


    Cost Benefit Analysis; Publicly provided goods; Social welfare;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H4 - Public Economics - - Publicly Provided Goods
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mil:wpdepa:2011-28. 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: (DEMM Working Papers). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.