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An incomplete contracts perspective on the provision and pricing of excludable public goods

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  • Felix Bierbrauer

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    (Max Planck Institute for Research on Collective Goods, Bonn)

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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.coll.mpg.de/pdf_dat/2010_01online.pdf
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    Bibliographic Info

    Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_01.

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    Date of creation: Apr 2010
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    Handle: RePEc:mpg:wpaper:2010_01

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    Related research

    Keywords: Incomplete Contracts; Excludable Public Goods; Regulation;

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    1. Hellwig, Martin F., 2007. "The provision and pricing of excludable public goods: Ramsey-Boiteux pricing versus bundling," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 511-540, April.
    2. Norman,P., 2000. "Efficient mechanisms for public goods with use exclusions," Working papers 15, Wisconsin Madison - Social Systems.
    3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    4. John O. Ledyard & Thomas R. Palfrey, 1999. "A Characterization of Interim Efficiency with Public Goods," Econometrica, Econometric Society, vol. 67(2), pages 435-448, March.
    5. 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.
    6. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    7. Martimort, David & De Donder, Philippe & de Villemeur, Étienne, 2003. "An Incomplete Contract Perspective on Public Good Provision," IDEI Working Papers 212, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Schmitz, Patrick W., 1997. "Monopolistic Provision of Excludable Public Goods under Private Information," MPRA Paper 6549, University Library of Munich, Germany.
    9. Felix Bierbrauer, 2009. "On the Legitimacy of Coercion for the Financing of Public Goods," CESifo Working Paper Series 2663, CESifo Group Munich.
    10. 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, January.
    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. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    13. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
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