Efficiency and Firm Ownership: Some New Evidence

The paper investigates the effect of state ownership on efficiency of firmsusing an econometric model that allows for the separation of technical from allocative efficiency in adynamic setting. The estimation results, based on a sample of international airlines, suggest that state ownershipis associated with lower technical and allocative efficiency. State ownership's effect on technical efficiencyis mainly a dynamic one – lowering the rate of cost decline, whereas its effect on allocativeefficiency is static – raising the level of costs. Thus lower technical, rather than allocative, efficiency isthe main reason for state-owned firms to be less efficient than their private counterparts.