Public policies on pricing of outputs and inputs and on the recruitment of managerial personnel are keys to overall stateenterprise performance in any setting. The examination of the record shows that, on the whole and with few exceptions, Brazilian public enterprises turned in strong growth records and were reasonably successful from the standpoint of profits. How much of this performance can be traced back to price policies?

An obvious problem is to resolve the tension between “microtechnical” considerations (e.g., prices that allocate resources “properly” or “fairly”) and political considerations (e.g., prices that will provide the public firm with investment finance or that will contribute toward moderating increases in the cost of living). The theory of public enterprise pricing guidelines has been treated at great length in the literature, but the complexity of the topic does not admit much agreement on proper policies. Most of the discussion assumes that public enterprises operate in sectors in which competition is weak or nonexistent, so control over pricing is needed to achieve a more efficient allocation of resources and to avoid welfare losses. Under such market structures, it is not sufficient to tell public enterprise managers to follow commercial guidelines in setting prices. In the search for a basis for pricing that avoids the extremes of complete price-setting freedom and arbitrary price controls, discussion usually centers upon the applicability of marginal cost pricing in public enterprises. This is because, under certain very restrictive assumptions, the most efficient allocation of resources is obtained when prices everywhere in the economy are set equal to (or equiproportionate to) marginal costs.