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Incomplete contracts and excludable public goods

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  • Bierbrauer, Felix J.
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    Abstract

    We study whether a firm that produces and sells access to an excludable public good should face a self-financing requirement, or, alternatively, receive subsidies that help to cover the cost of public-goods provision. The main result is that the desirability of a self-financing requirement is shaped by an equity-efficiency trade-off: while first-best efficiency is out of reach with such a requirement, its imposition limits the firm's ability of rent extraction. Hence, consumer surplus may be higher if the firm has no access to public funds.

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    File URL: http://www.sciencedirect.com/science/article/pii/S004727271000188X
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 95 (2011)
    Issue (Month): 7 ()
    Pages: 553-569

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    Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:553-569

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    Web page: http://www.elsevier.com/locate/inca/505578

    Related research

    Keywords: Incomplete contracts; Excludable public goods; Regulation;

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    References

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    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760.
    2. Gilbert E. Metcalf & Jongsang Park, 2005. "A Comment on the Role of Prices for Excludable Public Goods," Discussion Papers Series, Department of Economics, Tufts University 0524, Department of Economics, Tufts University.
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    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
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    6. De Donder, Philippe & Martimort, David & de Villemeur, Étienne, 2005. "An Incomplete Contract Perspective on Public Good Provision," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
    7. Felix Bierbrauer, 2009. "On the legitimacy of coercion for the financing of public goods," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2009_15, Max Planck Institute for Research on Collective Goods.
    8. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-30, July.
    9. Tilman Börgers & Peter Norman, 2009. "A note on budget balance under interim participation constraints: the case of independent types," Economic Theory, Springer, vol. 39(3), pages 477-489, June.
    10. Schmitz, Patrick W, 1997. "Monopolistic Provision of Excludable Public Goods under Private Information," Public Finance = Finances publiques, , vol. 52(1), pages 89-101.
    11. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    12. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 509-40, October.
    13. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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    15. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    16. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    17. Felix Bierbrauer, 2009. "On the Legitimacy of Coercion for the Financing of Public Goods," Working Papers 2009.98, Fondazione Eni Enrico Mattei.
    18. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    19. Felix Bierbrauer, 2009. "On the Legitimacy of Coercion for the Financing of Public Goods," CESifo Working Paper Series 2663, CESifo Group Munich.
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