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Efficient State-Owned Enterprises

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We investigate a quantity-setting duopoly involving a private firm and a privatized firm jointly owned by the public and private sectors. The private firm maximizes profits, while the privatized firm takes both profits and social welfare into consideration. We consider how many shares the government should hold in the privatized firm. We find that neither full privatization (the government does not hold any shares) nor full nationalization (the government holds all of the shares) is optimal under moderate conditions.
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In this paper we estimate the frontier and time variant technical efficiency fully nonparametrically by exploiting recent advances in kernel regression estimation of cat- egorical data. Specifically, we model firm (unordered) and time (ordered) categorical variables directly into the conditional mean. This approach allows us to smooth the firm and time specifi ce ffects, which formally entered the model linearly. Our setup al- lows for more flexible and accurate estimates of the frontier and time variant technical efficiency. Further, the estimators are consistent and achieve the standard nonpara- metric rate of convergence. We apply these techniques to a data set examining labor efficiencies of 17 railway companies over a period of 14 years. Not only are our results for the elasticites more economically intuitive than the parametric and semiparametric procedures, we obtain different rankings in terms of labor efficiencies.
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We present a model of the exploration and development activities of a National Oil Company (NOC), which uses similar technology to a private firm to extract a depletable resource. However, unlike the private firm, the NOC may have a wider range of objectives than maximizing the present value of profits. Specifically, we assume an objective function that balances firm profitability against a political desire to favor domestic consumer surplus and domestic employment. We find that the non-commercial objectives faced by a NOC tend to reinforce each other in their effects on profitability, the timing of cash flows and employment.
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Mongolia's mass privatization program was implanted in a country that lacked the very basic institutions of capitalism. This paper examines the effects of competition and ownership on the efficiency of the newly privatized enterprises, using a representative sample of enterprises and controlling for possible selection biases. Competition has quantitatively large effects, perfectly competitive firms having nearly double the efficiency of monopolies. Enterprises with residual state ownership appear to be more efficient than other enterprises, reflecting an environment where the government was pressured to focus on efficiency and institutions gave little voice to outsider owners.
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In this paper we consider the problem of estimating nonparametric panel data models with fixed effects. We introduce an iterative nonparametric kernel estimator. We also extend the estimation method to the case of a semiparametric partially linear fixed effects model. To determine whether a parametric, semiparametric or nonparametric model is appropriate, we propose test statistics to test between the three alternatives in practice. We further propose a test statistic for testing the null hypothesis of random effects against fixed effects in a nonparametric panel data regression model. Simulations are used to examine the finite sample performance of the proposed estimators and the test statistics.
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State intervention in the Norwegian Continental Shelf started with the establishment of Statoil as the medium of state ownership over the found petroleum and as a tool to monitor oil companies’ procurement behaviour. This paper tests the extent to which the state intervention created inefficiencies in the Norwegian Continental Shelf (NCS) activities, as measured by data envelopment analysis, stochastic frontier analysis, Malmquist Indices, and standard regression analysis. Our results confirm such inefficiencies. Accordingly, the results provide an important insight into NCS production techniques and, more generally, into governments’ abilities to influence private sector behaviour through contracts and tendering.
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There is a great deal of variation in the extent of state ownership of enterprises across countries and despite the growing consensus over the benefits of privatization many countries continue to maintain large public sectors. Currently, there are two prominent theories that purport to explain the extent of public ownership. One perspective emphasizes the role of state ownership as a means of resolving contracting problems when the government wants to get the firms to perform certain tasks. The other points to public enterprises as a substitute for private ones that are driven out when the risk of opportunistic changes in regulatory and tax policies is high. This paper develops a model that puts these two theories into a common framework and identifies the conditions under which the effects of each dominate. The results show that deficiencies in commitment and greater political pressure for control of employment are associated with larger public enterprise sectors. We also find that a higher opportunity cost of public funds tends to reduce the extent of state ownership except when commitment capability and pressure for employment control are low. These findings have interesting implications for the pattern of state ownership across countries and for the timing of nationalizations and privatizations.
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We present a model of bargaining between politicians and managers that explains many stylized facts about the behavior of state firms, their commercialization, and privatization. Subsidies to public enterprises and bribes from managers to politicians emerge naturally in the model. We use the model and several extensions to understand why commercialization and privatization might work, and what forces contribute to effective restructuring of public enterprises. We illustrate the model using examples from several countries.
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Public sector occupies a prominent position in the Indian economy. The present government policy is to divest its holding in PSUs, without privatizing profit making PSUs. It has also decided to provide full autonomy to the board of directors of those enterprises. This provides an interesting setting to examine corporate governance issues. This paper examines corporate governance issues in the context of present disinvestment policy of the government.