Privatization, Information and Incentives

28 Pages Posted: 25 Jun 2004 Last revised: 11 Jul 2010

See all articles by David E. M. Sappington

David E. M. Sappington

University of Florida - Department of Economics; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: March 1987

Abstract

In this paper, the choice between public and private provision of goods and services is considered. In practice, both modes of operation involve significant delegation of authority, and thus appear quite similar in some respects. The argument here is that the main difference between the two mod- concerns the transactions cats faced by the government when attempting to intervene in the delegated production activities. Such intervention is generally less costly under public ownership than under private ownership. The greater ease of intervention under public ownership can have its advantages; but the fact that a promise not to intervene is more credible under private production can also have beneficial incentive effects, The Fundamental Privatization Theorem (analogous to The Fundamental Theorem of Welfare Economics) is presented, providing conditions under which government production cannot improve upon private production. The restrictiveness of these conditions is evaluated.

Suggested Citation

Sappington, David E. M. and Stiglitz, Joseph E., Privatization, Information and Incentives (March 1987). NBER Working Paper No. w2196. Available at SSRN: https://ssrn.com/abstract=227393

David E. M. Sappington (Contact Author)

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