Management buy-outs from the public sector: ownership form and incentive issues

'Does ownership matter?', asks the title of a recent commentary on the privatisation debate (Yarrow, 1989). The author reviews the available evidence and concludes that it does only in so far as privately-owned firms outperform state enterprises under competitive market conditions.Remove the spur of product market rivalry and the welfare consequences of a shift to private ownership appear ambiguous: the greater profit orientation of such ownership may reduce allocative efficiency by more or less than it raises internal (i.e. operating) efficiency. Add in non-trivial disposal costs (see Bishop and Kay (1988)) and continuing concern over teh adequacy of market that the UK privatisation programme is proving controversial.