The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads

TLDR

Public and private firm efficiency is typically compared in heavily regulated, low‑competition industries. The study isolates the effects of property rights from regulation in a noncompetitive market. The authors compare postwar productivity of Canadian National and Canadian Pacific railroads. The government‑owned railroad performed as well as the private one, and competition offsets any public‑ownership inefficiency.

Abstract

The efficiency of public and private firms is usually compared in industries which have heavy regulation and limited competition. In this paper we present a case study in which the effects of property rights can be isolated from the effects of regulation on noncompetitive markets. We compare the postwar productivity performance of the Canadian National and Canadian Pacific Railroads. Contrary to the predictions of the property rights literature, we find no evidence of inferior performance by the government-owned railroad. We conclude that any tendency toward inefficiency resulting from public ownership has been overcome by the benefits of competition.