Optimal Ownership of Public Goods under Asymmetric Information

Schmitz, Patrick W. (2021): Optimal Ownership of Public Goods under Asymmetric Information. Published in: Journal of Public Economics , Vol. 198, No. Article 104424 (2021)

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: incomplete contracts; control rights; public goods; private information; investment incentives
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out

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