Public Ownership: Concepts and Applications

Public ownership is viewed as a restriction on the portfolio of equities held by investors. Three conditions are required to justify such restrictions. First, monitoring and coordination create concentration in supply or demand. Second, complete contracts must be infeasible or undesirable. Third, the creation of property rights may give rise to undesirable outcomes if demand in subsequent periods is uncertain. Using a multiperiod analysis, public ownership may be justified in circumstances in which considerations of flexibility outweigh those of commitment. The paper applies these ideas to an international analysis of ownership in several industries and finds that they are informative about both observed patterns and factors that are prompting change.