Professor of Economics
Ownership structure; Influence externality; Side payments; Resource allocation;
Political involvement in the operation of an enterprise, whether it is private or state owned, creates opportunities for interest groups to influence the allocation of resources. Resource allocation transfers rent both between unions and private owners within the firm and between these organized insiders and the disorganized taxpayers.The author investigates how insiders’ lobby activities distort resource allocation in a state owned enterprise. Then he shows that efficiency in labour allocation is improved when cash flow is transferred to private owners.Finally, the author analyzes how transferring control rights affects efficiency in resource allocation when there are restrictions on side payments between the interest groups.