THE property rights theory of the firm suggests that public enterprises should perform less efficiently and less profitably than private enterprises. However, the existing empirical evidence actually provides weak support for this hypothesis. Most of the evidence is based upon North American" firms" and has compared the performance of matched public and private firms where at least one of the following limitations applies:(1) firms have a natural (spatial) monopoly (namely, electric and water utilities, nonrail transit, fire services, and refuse collection);(2) there is a regulated duopoly (for example, airlines, railroads, nonrail transit, financial institutions); or (3) output is not or cannot be priced by competitive forces (this applies to all of the above plus health-related services). Almost no empirical research has tested the effect of ownership in a competitive environment. In fact, with the exception of two studies that examine Indonesia and Tanzania,'no study has explicitly compared the effect of ownership while controlling for relevant factors.