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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
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Handle: RePEc:cpr:ceprdp:9141
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  1. Georg Noeldeke & Klaus Schmidt, 1998. "Sequential Investments and Options to Own," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 633-653, Winter.
  2. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  3. Besley, Timothy J. & Ghatak, Maitreesh, 2001. "Government versus Private Ownership of Public Goods," CEPR Discussion Papers 2725, C.E.P.R. Discussion Papers.
  4. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  5. Hoppe, Eva I & Schmitz, Patrick W, 2008. "Public Versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks," CEPR Discussion Papers 7056, C.E.P.R. Discussion Papers.
  6. Francesconi, Marco & Muthoo, Abhinay, 2010. "Control Rights in Complex Partnerships," The Warwick Economics Research Paper Series (TWERPS) 933, University of Warwick, Department of Economics.
  7. Susanne Ohlendorf, 2009. "Expectation Damages, Divisible Contracts, and Bilateral Investment," American Economic Review, American Economic Association, vol. 99(4), pages 1608-18, September.
  8. Hart, Oliver & Moore, John, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 115-38, January.
  9. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, March.
  10. Schmitz, Patrick W., 2012. "Public goods and the hold-up problem under asymmetric information," Economics Letters, Elsevier, vol. 117(3), pages 642-645.
  11. 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.
  12. repec:cup:cbooks:9780521576475 is not listed on IDEAS
  13. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  14. Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
  15. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  17. Schmitz, Patrick W, 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers.
  18. 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.
  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. 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.
  21. repec:hrv:faseco:4784029 is not listed on IDEAS
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