Economics of State-Owned Enterprises

Forthcoming, International Journal of Public Administration

40 Pages Posted: 25 Oct 2014

See all articles by Tālis J. Putniņš

Tālis J. Putniņš

University of Technology Sydney (UTS); Digital Finance CRC; Stockholm School of Economics, Riga

Date Written: October 24, 2014


State-owned enterprises (SOEs) account for a substantial proportion of GDP, employment and assets in many countries. This article reviews the theory relating to SOEs: their economic rationale, the circumstances in which SOEs are the preferred form of government intervention, and their efficiency and welfare consequences. Based on the theory and empirical evidence, we develop a novel five-step framework that can guide policymakers and economic advisors in making decisions about maintaining and/or creating SOEs. The framework suggests that the use of SOEs should be limited to circumstances in which a market failure exists, less invasive forms of intervention such as regulation/taxes/subsidies and private sector contracting are ineffective or not possible, and the welfare loss of the market failure exceeds the costs, distortions and inefficiencies of SOEs.

Keywords: state-owned enterprise, government, market failure, efficiency, social welfare

JEL Classification: H11, H23, H41, D60, L32, L51, P43

Suggested Citation

Putnins, Talis J., Economics of State-Owned Enterprises (October 24, 2014). Forthcoming, International Journal of Public Administration, Available at SSRN:

Talis J. Putnins (Contact Author)

University of Technology Sydney (UTS) ( email )

PO Box 123
+61 2 9514 3088 (Phone)

Digital Finance CRC ( email )

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
+371 67015841 (Phone)

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