We make a positive analysis of the impact of market structure and political preferences on a (local) government's decision to privatize a given service using the framework of Hart, Shleifer and Vishny (1997). We argue that although outsourcing is more attractive when the private market is...

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. I analyze how the influence externality arising from the interest groups' lobby activities disables the Coase...