DOES DISPERSED PUBLIC OWNERSHIP IMPAIR EFFICIENCY? THE CASE OF REFUSE COLLECTION IN NORWAY

Abstract

Corporate governance theory suggests that companies with dispersed and indirect ownership suffer from agency costs. A worst case is where several political authorities jointly own a company, which allows managers to operate with inferior efficiency. In political economy, the manager is not the major agency problem. Elected politicians may impair efficiency to improve their re‐election prospects. Since politicians have less influence in jointly owned firms, such companies are expected to perform better than those owned by a single public authority. Consistent with corporate governance – but not political economy – the empirical analysis suggests that dispersed municipal ownership impairs cost efficiency. In the Norwegian case of municipal refuse collection presented here, costs of dispersed ownership often outstrip gains from economies of scale. Use of jointly owned companies is not necessarily a proper response to efficiency problems inherent a fragmented local government structure.

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