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Maintenance Costs, Outside Options and Optimal Ownership of a Public Good

  • Grosjean Pauline

    ()

    (University of San Francisco)

There has been much attention recently to public-private partnerships and the involvement of NGOs in public good provision. This paper re-examines the effect of ownership of a public good on investment incentives when contracts are incomplete. In the presence of maintenance costs, it is shown that the leading result in the literature by Besley and Ghatak (2001) does not carry through. In some circumstances, project ownership should be allocated to the party that values the project relatively less. The model is applied to the case of environmental conservation and investigates the advantages of Payments for Environmental Services from the point of view of investment incentives in conservation.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 10 (2010)
Issue (Month): 1 (November)
Pages: 1-18

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Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:104
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  1. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
  3. Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 133-150, Fall.
  4. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  5. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  6. David Martimort & Philippe De Donder & Etienne Billette de Villemeur, 2005. "An Incomplete Contract Perspective on Public Good Provision," Journal of Economic Surveys, Wiley Blackwell, vol. 19(2), pages 149-180, 04.
  7. 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.
  8. Daron Acemoglu & Michael Kremer & Atif Mian, 2003. "Incentives in Markets, Firms and Governments," NBER Working Papers 9802, National Bureau of Economic Research, Inc.
  9. Engel, Stefanie & Pagiola, Stefano & Wunder, Sven, 2008. "Designing payments for environmental services in theory and practice: An overview of the issues," Ecological Economics, Elsevier, vol. 65(4), pages 663-674, May.
  10. John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 709-724.
  11. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 753-770.
  12. Miguel, Edward & Gugerty, Mary Kay, 2005. "Ethnic diversity, social sanctions, and public goods in Kenya," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2325-2368, December.
  13. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, December.
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