Political ownership

Political involvement in the operation of an enterprise, whether it is priv ate or state owned, creates opportunities fur interest groups to influence the allocation of resources. Resource allocation transfers rent both betwee n unions and private owners within the firm and between these organized ins iders and the disorganized taxpayers. I investigate how insiders' lobby act ivities distort resource allocation in a state owned enterprise. Then I sho w that efficiency in labour allocation is improved when cash flow is transf erred to private owners, Finally, I analyze how transferring control rights affects efficiency in resource allocation when there are restrictions on s ide payments between the interest groups. (C) 2000 Elsevier Science S.A. Al l rights reserved.