State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community as opposed to an individual or private party. Public ownership specifically refers to industries selling goods and services to consumers and differs from public goods and government services financed out of a government's general budget. Public ownership can take place at the national, regional, local, or municipal levels of government; or can refer to non-governmental public ownership vested in autonomous public enterprises. Public ownership is one of the three major forms of property ownership, differentiated from private, collective/cooperative, and common ownership.
In market-based economies, state-owned assets are often managed and operated as joint-stock corporations with a government owning all or a controlling stake of the company's shares. This form is often referred to as a state-owned enterprise. A state-owned enterprise might variously operate as a not-for-profit corporation, as it may not be required to generate a profit; as a commercial enterprise in competitive sectors; or as a natural monopoly. Governments may also use the profitable entities they own to support the general budget. The creation of a state-owned enterprise from other forms of public property is called corporatization.
In Soviet-type economies, state property was the dominant form of industry as property. The state held a monopoly on land and natural resources, and enterprises operated under the legal framework of a nominally planned economy, and thus according to different criteria than enterprises in market and mixed economies.
Nationalization is a process of transferring private or municipal assets to a central government or state entity. Municipalization is the process of transferring private or state assets to a municipal government.
There is a distinction to be made between state ownership and public property. The former may refer to assets operated by a specific state institution or branch of government, used exclusively by that branch, such as a research laboratory. The latter refers to assets and resources that are available to the entire public for use, such as a public park (see public space).
In neoclassical economic theory, the desirability of state owner
In neoclassical economic theory, the desirability of state ownership has been studied using contract theory. According to the property rights approach based on incomplete contracting (developed by Oliver Hart and his co-authors), ownership matters because it determines what happens in contingencies that were not considered in prevailing contracts.
The work by Hart, Shleifer and Vishny (1997) is the leading application of the property rights approach to the question whether state ownership or private ownership is desirable. In their model, the government and a priv
The work by Hart, Shleifer and Vishny (1997) is the leading application of the property rights approach to the question whether state ownership or private ownership is desirable. In their model, the government and a private firm can invest to improve the quality of a public good and to reduce its production costs. It turns out that private ownership results in strong incentives to reduce costs, but it may also lead to poor quality. Hence, depending on the available investment technologies, there are situations in which state ownership is better. The Hart-Shleifer-Vishny theory has been extended in many directions. For instance, some authors have also considered mixed forms of private ownership and state ownership. Moreover, the Hart-Shleifer-Vishny model assumes that the private party derives no utility from provision of the public good. Besley and Ghatak (2001) have shown that if the private party (a non-governmental organization) cares about the public good, then the party with the larger valuation of the public good should always be the owner, regardless of the parties' investment technologies.
More recently, some authors have shown that the investment technology also matters in the Besley-Ghatak framework if an investing party is indispensable or if there are bargaining frictions between the government and the private party.