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Incomplete contracts and optimal ownership of public goods

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  • Schmitz, Patrick W.

Abstract

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.

Suggested Citation

  • Schmitz, Patrick W., 2013. "Incomplete contracts and optimal ownership of public goods," Economics Letters, Elsevier, vol. 118(1), pages 94-96.
    • 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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    Cited by:

    1. Schmitz, Patrick W., 2013. "Bargaining position, bargaining power, and the property rights approach," Economics Letters, Elsevier, vol. 119(1), pages 28-31.
    2. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    3. Schmitz, Patrick W., 2015. "Government versus private ownership of public goods: The role of bargaining frictions," Journal of Public Economics, Elsevier, vol. 132(C), pages 23-31.
    4. Gui, Emi Minghui & Diesendorf, Mark & MacGill, Iain, 2017. "Distributed energy infrastructure paradigm: Community microgrids in a new institutional economics context," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 1355-1365.
    5. Laura Abrardi & Luca Colombo & Pier Angelo Mori, 2016. "Customer Ownership And Quality Provision In Public Services Under Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1499-1518, July.
    6. Maija Halonen-Aktawijuka & Evanjelos Parfilis, 2022. "Who Should Own the Past?," Bristol Economics Discussion Papers 22/758, School of Economics, University of Bristol, UK.
    7. Bin R. Chen & Y. Stephen Chiu, 2014. "Task Interdependence and Noncontractibility in Public-Good Provision," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(4), pages 731-748, December.
    8. Schmitz, Patrick W., 2024. "When should the government own the physical assets needed to provide public goods?," Economics Letters, Elsevier, vol. 241(C).
    9. Schmitz, Patrick W., 2014. "Optimal ownership of public goods reconsidered," Economics Letters, Elsevier, vol. 125(1), pages 21-24.
    10. Takasago, Takao, 2019. "Control rights in complex partnerships revisited," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    11. Halonen-Akatwijuka, Maija & Pafilis, Evagelos, 2014. "Location and ownership of public goods," Economics Letters, Elsevier, vol. 123(3), pages 395-397.
    12. Ram Singh, 2018. "Public–private partnerships vs. traditional contracts for highways," Indian Economic Review, Springer, vol. 53(1), pages 29-63, December.
    13. Takaya Kubota & Shin’ya Okuda, 2023. "Allocation of decision rights among two parties with asymmetric bargaining powers in bidirectional open innovation," SN Business & Economics, Springer, vol. 3(6), pages 1-17, June.

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    More about this item

    Keywords

    Ownership; Incomplete contracts; Investment incentives; Public goods;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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