"Competition", "liberalisation" and "privatisation" are emotive words in Austria's economic policy debate. To contribute to a less emotional discussion on the "privatisation of public assets" WIFO provides an objective and balanced analysis, not only of the advantages and opportunities of privatisations, but also of their disadvantages and problems. The analysis is presented in three articles in WIFO's Austrian Economic Quarterly, which are based on the theoretical literature and empirical evidence. This first article of the series focuses on the theoretical foundations and the mutual relations of private and public ownership of companies. According to economic theory government interference in the form of public enterprise is only justified in a market economy, if there is market failure and the specific government intervention can actually eliminate the market failure.