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

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  • Noriaki Matsushima
  • Ryusuke Shinohara

Abstract

We investigate public good provision through bilateral negotiations between a public-good supplier and the beneficiaries of the good. We find that although a pre-negotiation commitment on the production level of the public good by the supplier enhances the internalization of beneficiaries' preferences, the good is not necessarily provided efficiently. We show that 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 may be produced excessively as a result of the commitment when the supplier's bargaining power is sufficiently strong.

Suggested Citation

  • Noriaki Matsushima & Ryusuke Shinohara, 2015. "Pre-negotiation commitment and internalization in public good provision through bilateral negotiations," ISER Discussion Paper 0948r, Institute of Social and Economic Research, Osaka University, revised Aug 2017.
  • Handle: RePEc:dpr:wpaper:0948r
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