NATIONALIZATION VS REGULATION OF MONOPOLIES - THE EFFECTS OF OWNERSHIP ON EFFICIENCY

This paper compares the effects of government ownership and regulation under private ownership on the production decisions of a monopoly firm. It analyzes an optimal mechanism design problem in which the owners of the firm (either the government or shareholders) contract with a manager who has private information about the firm's cost function and takes an unobservable action that affects the firm's costs. The model predicts that the privately-owned, regulated firm will use relatively more capital and the publicly-owned firm will use relatively more labor than the second-best efficient solution to the private information problem. © 1991.