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This paper describes the privatization program in Italy during the 1990s and puts that policy in the context of macroeconomic adjustment, general market deregulation, and promotion of private investment in the provision of public infrastructure. The wave of state divestitures reached Italy later than other OECD countries. A deep-rooted tradition of state intervention, coupled with the use of public enterprises as a source of employment and political support, hindered the timid attempts at privatization of the 1980s, delaying until 1992 the start of largescale privatizations. These were imposed on Italian politicians and electorate by a host of factors: the financial crisis affecting both the general government and, sometimes irreversibly, state-owned enterprises (SOEs); the increasing aversion of the

Competent public agencies are associated with better economic outcomes. Beyond competence, political leaders need to secure the loyalty of their agencies. Unfortunately, several theories predict a tradeoff between these two valued features. This paper finds that recruitment into agencies is meritocratic where (1) agency officials have poor outside options, (2) careers in agencies are long-lasting, and (3) agency loyalty is important. Moreover, agency competence is lower when (4) loyalty is important but the time horizon is short, and (5) outside opportunities improve but the time horizon is long. This evidence fits best with a theory of loyalty as non-contractible behavior. Adapted from the source document.