TY  - JOUR
AU  - Bartel,Ann P.
AU  - Harrison,Ann E.
TI  - Ownership versus Environment:  Why are Public Sector Firms Inefficient?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7043
PY  - 1999
Y2  - March 1999
UR  - http://www.nber.org/papers/w7043
L1  - http://www.nber.org/papers/w7043.pdf
N1  - Author contact info:
Ann P. Bartel
Graduate School of Business
Columbia University
3022 Broadway, 623 Uris Hall
New York, NY  10027
Tel: 212/854-4419
Fax: (212) 316-9219
E-Mail: apb2@columbia.edu

Ann Harrison
Department of Agricultural
and Resource Econonmics
University of California, Berkeley
210 Giannini Hall
Berkeley, CA 94720
Tel: 510/643-9676
Fax: 510/643-8911
E-Mail: ann.harrison@berkeley.edu
AB  - In this paper we disentangle the sources of public sector inefficiency using 1982-1995 panel data on manufacturing firms in Indonesia.  We consider two leading hypotheses: (1) public sector enterprises are inefficient due to monitoring problems and (2) public sector enterprises are inefficient because of the environment in which they operate, as measured by the soft budget constraint.  The two models are nested in a production function framework and the empirical results provide support for the second hypothesis.  Public sector enterprises are inefficient because of their access to soft loans; public sector ownership has no independent impact on productivity growth.  The finding that ownership per se does not matter, but environment does, holds when we control for fixed effects and when we allow for the endogeneity of government loans. Interestingly, private sector firms with access to government loans did not perform more poorly than other private sector enterprises.  Another dimension of the environment, i.e. import penetration, also matters; public sector enterprises that have been shielded from import competition are inferior performers.
ER  -