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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. In an incomplete contracting framework, Besley and Ghatak (2001) have argued that 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9141.

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Date of creation: Sep 2012
Handle: RePEc:cpr:ceprdp:9141
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  1. Marco Francesconi & Abhinay Muthoo, 2011. "Control Rights In Complex Partnerships," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 551-589, 06.
  2. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
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  16. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership of Public Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1343-1372.
  17. Schmitz, Patrick W., 2013. "Public goods and the hold-up problem under asymmetric information," MPRA Paper 53717, University Library of Munich, Germany.
  18. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  19. 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.
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