ABSTRACT
This chapter reviews the theory relating to State-owned enterprises (SOEs): their economic rationale, the circumstances in which SOEs are the preferred form of government intervention, and their efficiency and welfare consequences. Based on the theory and empirical evidence, a novel five-step framework that can guide policymakers and economic advisors in making decisions about maintaining and/or creating SOEs is developed. The chapter draws together theory and empirical evidence relevant to understanding the economics of SOEs. It bridges the divide between academic studies and practice by translating the findings of a large body of academic work into a practical framework for assessing SOEs, their effects, and alternatives. The chapter covers the broad questions that are necessary for informed policymaking concerning SOEs, drawing insights mainly from microeconomics, public economics, welfare economics, organizational theory, and agency theory. Macroeconomic stability and full employment – important objectives of Keynesian economics – can be viewed as public goods.
