Discussion Paper Details

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Title: Government versus private ownership of public goods: The role of bargaining frictions

Author(s): Patrick W. Schmitz

Publication Date: July 2015

Keyword(s): bargaining frictions, incomplete contracts, investment incentives, ownership and public goods

Programme Area(s): Industrial Organization

Abstract: The government and a non-governmental organization (NGO) can invest in the provision of a public good. Who should be the owner of the public project? In an incomplete contracting model in which ex post negotiations are without frictions, the party that values the public good most should be the owner, regardless of technological aspects. However, under the plausible assumption that there are bargaining frictions, the optimal ownership structure depends on technological aspects and on the parties' valuations. We show that the differences between incomplete contracting models with public goods and private goods are thus smaller than has previously been thought.

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Bibliographic Reference

Schmitz, P. 2015. 'Government versus private ownership of public goods: The role of bargaining frictions'. London, Centre for Economic Policy Research.