DP16003 Optimal Ownership of Public Goods under Asymmetric Information

Author(s): Patrick W. Schmitz
Publication Date: April 2021
Keyword(s): Control Rights, Incomplete Contracts, Investment incentives, private information, Public Goods
JEL(s): C78, D23, D82, D86, H41, L33
Programme Areas: Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16003

Consider two parties who can make non-contractible investments in the provision of a public good. Who should own the physical assets needed to provide the public good? In the literature it has been argued that the party who values the public good most should be the owner, regardless of the investment technologies. Yet, this result has been derived under the assumption of symmetric information. We show that technology matters when the negotiations over the provision of the public good take place under asymmetric information. If party A has a better investment technology, ownership by party A can be optimal even when party B has a larger expected valuation of the public good.