Welfare Effects of State-owned Multinational Enterprises: A View from Agency and Incomplete Contracts Theory

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Purpose: The purpose of this paper is to theoretically investigate the potential welfare effects of state-owned enterprises’ (SOEs) international operations. Design/methodology/approach: The paper is conceptual, applying standard economics state ownership theory based on agency theory and incomplete contracts theory to different forms of SOE cross-border operations. Findings: When private firms are risk averse or financially constrained, or when writing complete contracts and making credible commitments are not possible, state ownership can achieve objectives such as international operations supporting domestic industrial policy, addressing social objectives in another government’s territory and addressing transnational market failures. Welfare effects may, however, also depend on home-host country relationships. Originality/value: This is the first application of standard economics state ownership theory to state-owned multinationals. The analysis shows that key conclusions from the state ownership literature in a domestic setting can be extended to international operations, and highlights new theoretical issues arising from SOEs going beyond their home jurisdiction to that of another government.

Original languageEnglish
Pages (from-to)207-220
Number of pages14
JournalInternational Journal of Public Sector Management
Issue number2
Early online date27 Jan 2018
Publication statusPublished - 5 Mar 2018


  • Agency theory
  • Incomplete contracts
  • International business
  • Multinational enterprise
  • State ownership
  • Welfare economics


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