DP10686 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, public goods
JEL(s): C78, D23, D86, H41, L31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10686

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.