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Incomplete contracts and optimal ownership of public goods

  • Schmitz, Patrick W.

The government and a non-governmental organization (NGO) can invest in the provision of a public good. Besley and Ghatak (2001) have argued that in an incomplete contracting framework, the party who values the public good most should be the owner. We show that this conclusion relies on their assumption that the parties split the renegotiation surplus 50:50. If the generalized Nash bargaining solution is applied, then for any pair of valuations that the two parties may have, there exist bargaining powers such that either ownership by the government or by the NGO can be optimal.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 1 ()
Pages: 94-96

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:94-96
DOI: 10.1016/j.econlet.2012.09.033
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  1. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  2. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  3. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  4. Francesconi, Marco & Muthoo, Abhinay, 2010. "Control Rights in Complex Partnerships," The Warwick Economics Research Paper Series (TWERPS) 933, University of Warwick, Department of Economics.
  5. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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  8. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  9. Schmitz, Patrick W, 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers.
  10. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
  11. Schmitz, Patrick W, 2012. "Public goods and the hold-up problem under asymmetric information," CEPR Discussion Papers 9065, C.E.P.R. Discussion Papers.
  12. Maija Halonen, 2010. "Nature of human capital, technology and ownership of public goods," The Centre for Market and Public Organisation 10/243, Department of Economics, University of Bristol, UK.
  13. 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.
  14. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, November.
  15. Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
  16. Ohlendorf, Susanne, 2008. "Expectation Damages, Divisible Contracts, and Bilateral Investment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 231, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  17. Maija Halonen-Akatwijuka & Evagelos Pafilis, 2009. "Reputation and Ownership of Public Goods," The Centre for Market and Public Organisation 09/211, Department of Economics, University of Bristol, UK.
  18. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
  19. Bernhard Ganglmair & Luke M. Froeb & Gregory J. Werden, 2012. "Patent Hold-Up and Antitrust: How A Well-Intentioned Rule Could Retard Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 249-273, 06.
  20. repec:hrv:faseco:4784029 is not listed on IDEAS
  21. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, December.
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