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Control Rights in Public-Private Partnerships

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  • Francesconi, Marco
  • Muthoo, Abhinay

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

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Citations

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Cited by:
  1. Hoppe, Eva I. & Schmitz, Patrick W., 2012. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," MPRA Paper 41966, University Library of Munich, Germany.
  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.
  3. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
  4. Rausser, Gordon C. & Balson, William & Stevens, Reid, 2009. "Centralized clearing for over-the-counter derivatives," CUDARE Working Paper Series 1091, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  5. 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.

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