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Control Rights in Public-Private Partnerships

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Author Info
Francesconi, Marco
Muthoo, Abhinay

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Abstract

This paper develops a theory of the allocation of authority between two parties that produce impure public goods. We show that the optimal allocation depends on technological factors, the parties' valuations of the goods produced, and the degree of impurity of these goods. When the degree of impurity is large, control rights should be given to the main investor, irrespective of preference considerations. There are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party's investment is more important than the other party's. If the parties' investments are of similar importance and the degree of impurity is large, shared authority is optimal with a greater share going to the low-valuation party. If the importance of the parties' investments is similar but the degree of impurity is neither large nor small, the low-valuation party should receive sole authority. We apply our results to a number of situations, including schools and child custody.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5733.

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Date of creation: Jun 2006
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Handle: RePEc:cpr:ceprdp:5733

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Related research
Keywords: allocation of authority; contractual incompleteness; impure public goods; investment incentives;

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Find related papers by JEL classification:
D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zhe Zhang & Ming Jia & Difang Wan, 2009. "Allocation of control rights and cooperation efficiency in public-private partnerships: theory and evidence from the Chinese pharmaceutical industry," International Journal of Health Care Finance and Economics, Springer, vol. 9(2), pages 169-182, June. [Downloadable!] (restricted)
  2. Hoppe, Eva I. & Schmitz, Patrick W., 2008. "Public Versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks," CEPR Discussion Papers 7056, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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