Introduction

The budget-constrained, government-owned public enterprise is a common form of organization for producing public services in many countries. At the federal government level in the United States, examples of public enterprises are the U.S. Postal Service, the Corporation for Public Broadcasting, the Tennessee Valley Authority operating recreation areas and a huge hydroelectric dam, the Federal Deposit Insurance Corporation, and the St. Lawrence Seaway Corporation, among others. Mixed ownership arrangements include Amtrak, COMSAT, ConRail, and even the National Academy of Sciences. At state and local government levels public enterprises number in the thousands. The magnitude of a public enterprise is often considerable, too; for instance, the U.S. Postal Service alone spends more than $30 billion a year. Public enterprises provide electricity and telephone as well as postal services in many European countries. In other parts of the world, government-owned enterprises can be found in agriculture, health, manufacturing, and other areas. Thus it is important to understand their behavior.

A large literature now combines knowledge from politics and economics to predict the consequences of providing goods or services through public or private enterprise. Direct implications of these theories are difficult to test, however, because they depend on unknowns like the political importance and cost of organizing all the affected groups. Moreover, the theories adduce too many possible explanations for events. Indeed, on a number of points the accumulating evidence cannot distinguish among hypotheses, and sharper hypotheses are needed if effects are to be successfully identified.