PRIVATE OWNERSHIP FORM AND PRODUCTIVE EFFICIENCY - ELECTRIC COOPERATIVES VERSUS INVESTOR-OWNED UTILITIES

Property rights theory predicts that private firms whose ownership sha res are not tradable will not be managed efficiently. This paper tests that theory by comparing the costs of rural electric cooperatives (RE Cs) and investor-owned electric utilities (IOUs). Separate translog co st functions are estimated for the RECs and the IOUs. The estimated co sts of producing several three-product output bundles are then compare d across ownership form under the assumption that all firms face ident ical input prices. The empirical results suggest that the cooperative sector of the electric power industry produces its output in a much le ss efficient manner than does the investor-owned sector.