chapter  5
20 Pages


The objectives of government-owned firms (as well as of bureaus) are a complex amalgamation of the goals of some principals and many agents. The typical arguments that enter the Nash product that represents a government-owned firm's objectives include the objectives of the citizenry as defined by those who act on its behalf, various interest groups, members of the political or administrative bodies that oversee its operation and its managers and employees. The weights attached to the objectives of these various groups depend on many factors, such as the nature of the product, the nature of the political process and the organization of interest groups. Because the agency problem is more severe in government-owned firms, all agents in these firms may have access to a larger share of the surplus than in proprietary or worker-owned firms. This will be reflected in a larger weight attached to the preferences of both managers and employees of government-owned firms. Since the agency problem varies across government-owned firms the weight of managers and employees relative to that of other parties will vary as well.