DP13204 Government versus Private Ownership of Public Goods: Experimental Evidence

Author(s): David J. Kusterer, Patrick W. Schmitz
Publication Date: September 2018
Keyword(s): Incomplete Contracts, Investment incentives, Laboratory experiments, Property rights, Public Goods
JEL(s): C92, D23, D86, H41, L33
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13204

Who should own public projects? We report data from a laboratory experiment with 480 participants that was designed to test Besley and Ghatak's (2001) public-good version of the Grossman-Hart-Moore property rights theory. Consider two parties, one of whom can invest in the provision of a public good. The parties value the public good differently. Besley and Ghatak (2001) argue that more investments will be made if the high-valuation party is the owner, regardless of whether or not this party is the investor. While our experimental results provide support for the Grossman-Hart-Moore theory, they cast some doubts on the robustness of Besley and Ghatak's (2001) conclusion.