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Pre-negotiation commitment and internalization in public good provision through bilateral negotiations

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  • Matsushima, Noriaki
  • Shinohara, Ryusuke

Abstract

A profit-maximizing public good supplier endogenously determines the level of the public good and simultaneously negotiates with beneficiaries of the good one by one. A pre-negotiation commitment on the production level of the public good by the supplier enhances the internalization of beneficiaries' preferences. With the commitment, the supplier produces the public good at an efficient level in equilibrium if and only if its bargaining power is sufficiently weak. In addition, the public good is produced excessively as a result of the commitment when the supplier's bargaining power is sufficiently strong.

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  • Matsushima, Noriaki & Shinohara, Ryusuke, 2019. "Pre-negotiation commitment and internalization in public good provision through bilateral negotiations," Journal of Public Economics, Elsevier, vol. 175(C), pages 84-93.
    • Handle: RePEc:eee:pubeco:v:175:y:2019:i:c:p:84-93
    DOI: 10.1016/j.jpubeco.2019.03.009
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    More about this item

    Keywords

    Public good; Simultaneous bilateral bargaining; Supplier bargaining power; Nash bargaining solution;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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