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Incomplete contracts and optimal ownership of public goods

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  • Schmitz, Patrick W.

Abstract

The government and a non-governmental organization (NGO) can invest in the provision of a public good. Besley and Ghatak (2001) have argued that in an incomplete contracting framework, the party who values the public good most should be the owner. We show that this conclusion relies on their assumption that the parties split the renegotiation surplus 50:50. If the generalized Nash bargaining solution is applied, then for any pair of valuations that the two parties may have, there exist bargaining powers such that either ownership by the government or by the NGO can be optimal.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 1 ()
Pages: 94-96

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:94-96

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Ownership; Incomplete contracts; Investment incentives; Public goods;

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References

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  1. Schmitz, Patrick W., 2013. "Public goods and the hold-up problem under asymmetric information," MPRA Paper 53717, University Library of Munich, Germany.
  2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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  4. Besley, Timothy J. & Ghatak, Maitreesh, 2001. "Government versus Private Ownership of Public Goods," CEPR Discussion Papers 2725, C.E.P.R. Discussion Papers.
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  12. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  13. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
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  16. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
  17. Francesconi, Marco & Muthoo, Abhinay, 2010. "Control Rights in Complex Partnerships," The Warwick Economics Research Paper Series (TWERPS) 933, University of Warwick, Department of Economics.
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  19. Maija Halonen-Akatwijuka & Evagelos Pafilis, 2009. "Reputation and Ownership of Public Goods," The Centre for Market and Public Organisation 09/211, Department of Economics, University of Bristol, UK.
  20. repec:hrv:faseco:4784029 is not listed on IDEAS
  21. Susanne Ohlendorf, 2009. "Expectation Damages, Divisible Contracts, and Bilateral Investment," American Economic Review, American Economic Association, vol. 99(4), pages 1608-18, September.
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Cited by:
  1. Schmitz, Patrick W., 2013. "Bargaining position, bargaining power, and the property rights approach," Economics Letters, Elsevier, vol. 119(1), pages 28-31.
  2. Halonen-Akatwijuka, Maija & Pafilis, Evagelos, 2014. "Location and ownership of public goods," Economics Letters, Elsevier, vol. 123(3), pages 395-397.

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