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44-711: Territory Generation is a government owned corporation of the Northern Territory , Australia, established on 1 July 2014. It had previously been an operational business unit of PowerWater . Territory Generation owns and operates eight power stations in the Northern Territory. Territory Generation traces its history back to the first power stations in the Northern Territory which were built in 1934 in Darwin and 1937 in Alice Springs . The Northern Territory does not have

88-419: A feasibility constraint. The 'strategic ambiguity hypothesis' assumes that the optimal formal contract may be deliberately incomplete. Companies use strategic ambiguity to circumvent legal constraints. Invalidate these agreements and make the law insufficient to prevent their formation and performance. Contracts have many restrictions in terms. Incomplete contracts are also limited by them. Contractual terms are

132-407: A firm with the assets that its owners control. One of Hart-Moore's key findings suggests an explanation for why firms, rather than workers, tend to own most of the non-human assets used to produce goods and services: complementary assets should be owned by one person. Incomplete contracts can create scenarios that lead to inefficient investments and market failures, but incompleteness is essentially

176-673: A more recent extension, Hart and Moore (2008) have argued that contracts may serve as reference points. The theory of incomplete contracts has been successfully applied in various contexts, including privatization , international trade , management of research & development , allocation of formal and real authority, advocacy, and many others. The 2016 Nobel Prize in Economics was awarded to Oliver D. Hart and Bengt Holmström for their contribution to contract theory, including incomplete contracts. In 1986, Grossman and Hart (1986) used incomplete contract theory in their seminal paper on

220-661: A public objective. For that reason, SOEs primarily operate in the domain of infrastructure (e.g., railway companies), strategic goods and services (e.g., postal services, arms manufacturing and procurement), natural resources and energy (e.g., nuclear facilities, alternative energy delivery), politically sensitive business, broadcasting, banking, demerit goods (e.g., alcoholic beverages ), and merit goods (healthcare). SOEs can also help foster industries that are "considered economically desirable and that would otherwise not be developed through private investments". When nascent or 'infant' industries have difficulty getting investments from

264-489: A regular enterprise, state-owned enterprises are typically expected to be less efficient due to political interference, but unlike profit-driven enterprises they are more likely to focus on government objectives. In Eastern Europe and Western Europe , there was a massive nationalization throughout the 20th century, especially after World War II . In the Eastern Bloc , countries adopted very similar policies and models to

308-472: A single interconnected electricity transmission network. Territory Generation owns and operates eight power stations on five separate networks. Three of these are regulated by the Australian Energy Regulator and are managed by PowerWater . Darwin and Katherine are on the largest regulated grid. The Alice Springs grid is the second-largest regulated grid. The smallest regulated grid services

352-529: A term in a settled contract to "fill in the gaps" as long as it is: Example: Example： ACL’s ( Australian Consumer Law ) implied terms in consumer contracts are intended to protect the buyer, and there is an implied term in every contract for the sale of goods. Conditions of ownership by the seller, implies the right to sell these goods to the buyer: ——Criminal or tortious contracts ——Contracts to promote corruption in public office ——Contracts intended to avoid paying taxes ——Contracts to prevent or delay

396-431: Is a stub . You can help Misplaced Pages by expanding it . Government owned corporation The terminology around the term state-owned enterprise is murky. All three words in the term are challenged and subject to interpretation. First, it is debatable what the term "state" implies (e.g., it is unclear whether municipally owned corporations and enterprises held by regional public bodies are considered state-owned). Next, it

440-562: Is a viable argument for SOEs is debated. SOEs are also frequently employed in areas where the government wants to levy user fees , but finds it politically difficult to introduce new taxation. Next, SOEs can be used to improve efficiency of public service delivery or as a step towards (partial) privatization or hybridization. SOEs can also be a means to alleviate fiscal stress, as SOEs may not count towards states' budgets. Compared to government bureaucracy, state owned enterprises might be beneficial because they reduce politicians' influence over

484-753: Is approximately 70% of total employment. State-owned enterprises are thus a major factor behind Belarus's high employment rate and a source of stable employment. In most OPEC countries, the governments own the oil companies operating on their soil. A notable example is the Saudi Arabian national oil company , Saudi Aramco , which the Saudi government bought in 1988, changing its name from Arabian American Oil Company to Saudi Arabian Oil Company. The Saudi government also owns and operates Saudi Arabian Airlines , and owns 70% of SABIC as well as many other companies. China's state-owned enterprises are owned and managed by

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528-469: Is contestable under what circumstances a SOE qualifies as "owned" by a state (SOEs can be fully owned or partially owned; it is difficult to determine categorically what level of state ownership would qualify an entity to be considered as state-owned since governments can also own regular stock , without implying any special interference). Finally, the term "enterprise" is challenged, as it implies statutes in private law which may not always be present, and so

572-423: Is focused on ex-ante investment incentives, while it neglects ex-post inefficiencies. It has been pointed out by Schmitz (2006) that the property rights approach can be extended to the case of asymmetric information, which may explain ex-post inefficiencies. The property rights approach has also been extended by Chiu (1998) and DeMeza and Lockwood (1998), who allow for different ways to model the renegotiations. In

616-602: Is highlighted in the predominant local terminology, with SOEs in Canada referred to as a " Crown corporation ", and in New Zealand as a " Crown entity ". The term " government-linked company " (GLC) is sometimes used, for example in Malaysia , to refer to private or public (listed on a stock exchange) corporate entities in which the government acquires a stake using a holding company . The two main definitions of GLCs are dependent on

660-401: Is incomplete for a variety of reasons and limitations. The incompleteness of a contract also means that the protection it provides may be inadequate. Even if a contract is incomplete, the legal validity of the contract cannot be denied, and an incomplete contract does not mean that it is unenforceable. The terms and provisions of the contract still have influence and are binding on the parties to

704-403: Is to be done in every possible contingency. At the time of contracting, future contingencies may not even be describable. Moreover, parties cannot commit themselves never to engage in mutually beneficial renegotiation later on in their relationship. Thus, an immediate consequence of the incomplete contracting approach is the so-called hold-up problem . Since at least in some states of the world

748-703: The State-owned Asset Supervision and Administration Commission (SASAC) . China's state-owned enterprises generally own and operate public services, resource extraction or defense. As of 2017 , China has more SOEs than any other country, and the most SOEs among large national companies. China's SOEs perform functions such as: contributing to central and local governments revenues through dividends and taxes, supporting urban employment, keeping key input prices low, channeling capital towards targeted industries and technologies, supporting sub-national redistribution to poorer interior and western provinces, and aiding

792-419: The hold-up problem with complex contracts, while Hart and Moore (1999) point out that these contractual solutions do not work if renegotiation cannot be ruled out. Some authors have argued that the pros and cons of vertical integration can sometimes also be explained in complete contracting models. The property rights approach based on incomplete contracting has been criticized by Williamson (2000) because it

836-833: The Minister of Finance II, the Minister in the Prime Minister's Department in charge of the Economic Planning Unit, the Chief Secretary to the Government, Secretary General of Treasury and the heads of each of the GLICs (the Employees Provident Fund, Khazanah Nasional Berhad , Lembaga Tabung Angkatan Tentera (the armed forces pension fund), Lembaga Tabung Haji and Permodalan Nasional Berhad . Khazanah Nasional Berhad provided

880-1003: The USSR. Governments in Western Europe, both left and right of centre, saw state intervention as necessary to rebuild economies shattered by war. Government control over natural monopolies like industry was the norm. Typical sectors included telephones , electric power , fossil fuels , iron ore , railways , airlines , media , postal services , banks , and water . Many large industrial corporations were also nationalized or created as government corporations, including, among many others: British Steel Corporation , Equinor , and Águas de Portugal . A state-run enterprise may operate differently from an ordinary limited liability corporation. For example, in Finland, state-run enterprises ( liikelaitos ) are governed by separate laws. Even though responsible for their own finances, they cannot be declared bankrupt ;

924-506: The advantage of market transactions also stems from the power of restraint conferred by ownership. The fact that economic actors are only finitely rational and cannot foresee all possible contingencies is perhaps at the heart of the problem. However, as this uncertain state of nature or behavior cannot be written into an enforceable contract, when the contract is incomplete, not all uses of the asset can be specified in advance and any contract negotiated in advance must leave some discretion as to

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968-411: The area around Tennant Creek . Kings Canyon Power Station is the only commercial source of electricity in the area of Kings Canyon . It provides up to 1.1MW from a combination of solar and diesel generation. Yulara Power Station services the town and locality of Yulara, Northern Territory . It produces 11MW from natural gas and diesel backup. This Northern Territory , Australia article

1012-579: The contract. As for contractual incompleteness, the law is concerned with when and how a court should fill gaps in a contract when there are too many or too uncertain to be enforceable, and when it is obliged to negotiate to make an incomplete contract fully complete or to achieve the desired final contract. The incomplete contracting paradigm was pioneered by Sanford J. Grossman , Oliver D. Hart , and John H. Moore . In their seminal contributions, Grossman and Hart (1986), Hart and Moore (1990), and Hart (1995) argue that in practice, contracts cannot specify what

1056-405: The costs and benefits of vertical integration to answer the question " What is a firm and what determines its boundaries?". The Grossman-Hart theory of property rights is the first to explain in a straightforward manner why markets are so important in the context of organizational choice. The advantage of non-integrated markets is that the owners (entrepreneurs) can exercise their control, while

1100-500: The form of Public Sector Undertakings (PSUs). The Malaysian government launched a GLC Transformation Programme for its linked companies and linked investment companies ("GLICs") on 29 July 2005, aiming over a ten-year period to transform these businesses "into high-performing entities". The Putrajaya Committee on GLC High Performance ("PCG"), which oversaw this programme, was chaired by the Prime Minister , and membership included

1144-412: The leading application of the incomplete contract theory to the issue of state-owned enterprises. These authors compare a situation in which the government is in control of a firm to a situation in which a private manager is in control. The manager can invest to come up with cost-reducing and quality-enhancing innovations. The government and the manager bargain over the implementation of the innovations. If

1188-506: The market. The essence of the 1986 Grossman-Hart model is about the optimal allocation of the constraining forces conferred by ownership, and its model of property rights is about the allocation of assets between individuals (entrepreneurs) rather than firms. Whereas the Hart-Moore model of 1990 extends this optimal allocation of traction, property rights theory clarifies the content of the asset allocation assumptions between firms and identifies

1232-426: The mind cannot collect, process, and understand an infinite amount of information, economic actors are limited in their rationality (the limitations of the human mind in understanding and solving complex problems) and one cannot anticipate all possible contingencies. Or perhaps because it is too expensive to write a complete contract, the parties will opt for a "sufficiently complete" contract. In short, every contract

1276-592: The negotiations fail, the owner can decide about the implementation. It turns out that when cost-reducing innovations do not harm quality significantly, then private firms are to be preferred. Yet, when cost-reductions may strongly reduce quality, state-owned enterprises are superior. Hoppe and Schmitz (2010) have extended this theory in order to allow for a richer set of governance structures, including different forms of public-private partnerships . SOEs are common with natural monopolies , because they allow capturing economies of scale while they can simultaneously achieve

1320-438: The optimal allocation or governance structure of property rights is the allocation that minimizes efficiency losses. Therefore, where Party A's investment is more important than Party B's, it is preferable to allocate title to the asset to Party A, even if this discourages Party B's investment. Incomplete contractual/property rights approach gives rise to theories of ownership and vertical integration, and it also directly addresses

1364-486: The parties will renegotiate their contractual arrangements later on, they have insufficient incentives to make relationship-specific investments (since a party's investment returns will partially go to the other party in the renegotiations). Oliver Hart and his co-authors argue that the hold-up problem may be mitigated by choosing a suitable ownership structure ex-ante (according to the incomplete contracting paradigm, more complex contractual arrangements are ruled out). Hence,

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1408-399: The private sector (perhaps because the good that is being produced requires very risky investments, when patenting is difficult, or when spillover effects exist), the government can help these industries get on the market with positive economic effects. However, the government cannot necessarily predict which industries would qualify as such 'infant industries', and so the extent to which this

1452-472: The property rights approach to the theory of the firm can explain the pros and cons of vertical integration , thus providing a formal answer to important questions regarding the boundaries of the firm that were first raised by Ronald Coase (1937). The incomplete contracting approach has been subject of a still ongoing discussion in contract theory. In particular, some authors such as Maskin and Tirole (1999) argue that rational parties should be able to solve

1496-428: The proportion of the corporate entity a government owns. One definition purports that a company is classified as a GLC if a government owns an effective controlling interest (more than 50%), while the second definition suggests that any corporate entity that has a government as a shareholder is a GLC. The act of turning a part of government bureaucracy into a SOE is called corporatization . In economic theory ,

1540-497: The question of what constitutes a firm. Both Grossman and Hart consider the firm to be a collection of assets over which the owners have residual control. In 1990, Oliver Hart and John Moore published another article, "Property Rights and the Nature of the Firm", which provided a framework for addressing when transactions should take place within the firm and when they should take place through

1584-451: The question of whether a firm should be owned by the state or by the private sector is studied in the theory of incomplete contracts developed by Oliver Hart and his co-authors. In a world in which complete contracts were feasible, ownership would not matter because the same incentive structure that prevails under one ownership structure could be replicated under the other ownership structure. Hart, Shleifer, and Vishny (1997) have developed

1628-538: The secretariat to the PCG and managed the implementation of the programme, which was completed in 2015. As of 2024, Philippines Amusement and Gaming Corporation (PAGCOR) is the most profitable state-owned enterprise in the Philippines. It is the third largest contributor to government revenues, following taxes and customs. Incomplete contracts In economic theory, the field of contract theory can be subdivided in

1672-469: The service. Conversely, they might be detrimental because they reduce oversight and increase transaction costs (such as monitoring costs, i.e., it is more difficult and costly to govern and regulate an autonomous SOE than it is the public bureaucracy). Evidence suggests that existing SOEs are typically more efficient than government bureaucracy, but that this benefit diminishes as services get more technical and have less overt public objectives. Compared to

1716-412: The specific details of an agreement, including the rights and obligations of the parties. Contractual terms are broadly divided into two types, express terms and implied terms. Express terms are included in the signed contract, or a caveat that is reasonably noticeable to the other party. Implicit terms include those implied by the court and any relevant legal provisions. Courts are often willing to imply

1760-465: The state answers for the liabilities. Stocks of the corporation are not sold and loans have to be government-approved, as they are government liabilities. State-owned enterprises are a major component of the economy of Belarus . The Belarusian state-owned economy includes enterprises that are fully state-owned, as well as others which are joint-stock companies with partial ownership by the state. Employment in state-owned or state-controlled enterprises

1804-493: The state's response to natural disasters, financial crises and social instability. China's SOEs are at the forefront of global seaport-building, and most new ports constructed by them are done within the auspices of the Belt and Road Initiative . As of at least 2024, an Ethiopian SOE is Africa's largest and most profitable airline, as well as Ethiopia's largest earner of foreign exchange. In India , government enterprises exist in

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1848-542: The term "corporations" is frequently used instead. Thus, SOEs are known under many other terms: state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, government-owned company, government controlled company, government controlled enterprise, government-owned corporation, government-sponsored enterprise , commercial government agency, state-privatised industry public sector undertaking, or parastatal, among others. In some Commonwealth realms , ownership by The Crown

1892-400: The theory of complete contracts and the theory of incomplete contracts . In contract law, an incomplete contract is one that is defective or uncertain in a material respect. A complete contract in economic theory means a contract which provides for the rights, obligations and remedies of the parties in every possible state of the world. However, since the human mind is a scarce resource and

1936-407: The use of the asset, with the 'owner' of the company being the party to whom residual control is allocated at the contract stage. Grossman and Hart claim that the essence of the firm lies in the decision-making power conferred by the ownership of its assets. In a world of incomplete contracts, decision-making power plays a key role in determining the incentives of owners. Grossman and Hart believe that

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