State vs Private Ownership--student

State vs Private Ownership--student - Comparative Economic...

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Unformatted text preview: Comparative Economic Systems Shleifer's: "State versus Private Ownership" Grand Valley State University Dr. Daniel Giedeman Primary Question What kinds of goods and services should be produced by government employees as opposed to private firms? Primary Answer Shleifer: In general, government ownership is worse than private ownership. Why? private ownership is the crucial source of incentives to innovate and become efficient (p. 135) Some Historical Background Why did anybody ever think that government ownership would be a good thing: Empirical observations of some successes of government control during WWII Failures of competition and regulation during the Great Depression Apparent success of Soviet industrialization Misunderstanding of the consequences of political control of firms Substantial disregard of the importance of innovation in market economies Benevolent Governments Assume the government wants to maximize social welfare i.e. the government wants to make its citizens as happy as possible overall Is government ownership better than private ownership? Benevolent Governments The question is: Is it better for the government to produce the goods/services "in house" or to outsource their production? The government could contract out the production to private firms. Examples: Many building projects Production of military equipment Etc. Benevolent Governments Potential problems with contracting-out: "the government cannot fully anticipate, describe, stipulate, regulate, and enforce exactly what it wants" Even so, Shleifer argues that the incentives of private ownership will often outweigh these negatives When assets are publicly owned, the public manager has relatively weak incentives to make investments that will reduce costs or to improve quality/innovate Benevolent Governments...
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State vs Private Ownership--student - Comparative Economic...

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