Towards a Property Rights View of Government Ownership

Posted: 16 May 2000

See all articles by David T. Robinson

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Kewei Hou

Ohio State University (OSU) - Department of Finance

Date Written: October 22, 1999

Abstract

This work explores the idea that governments use direct public ownership to make credible commitments to other agents in the economy. We argue that governments exercise indirect control rights over other agents' cash flows: direct ownership is a means of mitigating the holdup problems that arise when the government cannot commit to avoid abusing these rights. The empirical implication of this theory is that more credible governments take lower direct ownership of the economy, since they have fewer holdup problems to solve. With a unique panel comprising measures of ownership, credibility, and expenditure, for nearly 100 countries over a 10-year period, we find strong evidence in support of our propositions. To distinguish our story from alternatives we study the how the credibility-ownership relation varies with other measures. We find more pronounced results among industrial nations than developing ones. The tendency for high expenditure governments to own more diminishes as credibility increases. These results persist after instrumenting credibility with a country's origin of legal system and controlling for unobserved country-specific heterogeneity.

JEL Classification: G3, K0, P3

Suggested Citation

Robinson, David T. and Hou, Kewei, Towards a Property Rights View of Government Ownership (October 22, 1999). Available at SSRN: https://ssrn.com/abstract=216468

David T. Robinson (Contact Author)

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

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