Public vs. Private Ownership: The Current State of the Debate

67 Pages Posted: 26 Mar 2001

See all articles by Mary M. Shirley

Mary M. Shirley

World Bank - Development Research Group (DECRG)

Patrick Walsh

World Bank (Formerly)

Date Written: January 2001

Abstract

Disappointment with insider trading in Russia, with voucher privatization in the Czech Republic, and with the privatization of infrastructure in many developing countries has spawned new critiques of privatization. How do theory and empirical evidence answer the much-debated questions, Which is more important to performance, competition or private ownership? Are state enterprises more subject to welfare-reducing interventions by government than private firms are? Do state enterprises suffer more from problems of corporate governance?

At the heart of the debate about public versus private ownership lie three questions: · Does competition matter more than ownership? · Are state enterprises more subject to welfare-reducing interventions by government than private firms are? · Do state enterprises suffer more from governance problems than private firms do?

Even if the answers to these questions favor private ownership, the question must still be asked: Do distortions in the process of privatization mean that privatized firms perform worse than state enterprises?

Shirley and Walsh's review found greater ambiguity about the merits of privatization and private ownership in the theoretical literature than in the empirical literature. In most cases, empirical research strongly favors private ownership in competitive markets over a state-owned counterfactual (although construction of the counterfactual is itself a problem). Theory's ambiguity about ownership in monopoly markets seems better justified.

Since the choice confronting governments is between state ownership and privatization rather than between privatization and optimality, theory has left a gap that empirical work has tried to fill. Further research is needed.

This paper - a product of Regulation and Competition Policy, Development Research Group - is part of a larger effort in the group to analyze the effects of privatization and the role of regulation and politics. Mary Shirley may be contacted at mshirley@worldbank.org.

JEL Classification: L32, L33, D21, D23

Suggested Citation

Shirley, Mary M. and Walsh, Patrick Maurice, Public vs. Private Ownership: The Current State of the Debate (January 2001). World Bank Policy Research Working Paper No. 2420. Available at SSRN: https://ssrn.com/abstract=261854

Mary M. Shirley (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Policy Research Department
Washington, DC 20433
United States
202-473-7483 (Phone)
202-522-1155 (Fax)

Patrick Maurice Walsh

World Bank (Formerly) ( email )

1818 H Street, N.W.
Development Research Group Policy Research Department
Washington, DC 20433
United States

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