Optimal Ownership of Public Goods in the Presence of Transaction Costs

Müller, Daniel and Schmitz, Patrick W. (2017): Optimal Ownership of Public Goods in the Presence of Transaction Costs. Published in: Economics Letters , Vol. 152, (2017): pp. 88-92.

Abstract

A non-governmental organization (NGO) can make a non-contractible investment to provide a public good. Only ownership can be specified ex ante, so ex post efficiency requires reaching an agreement with the government. Besley and Ghatak (2001) argue that the party with the larger valuation should be the owner. We show that when transaction costs have to be incurred before the bargaining stage can be reached, ownership by the government can be optimal even when the NGO has a larger valuation. Our finding also contrasts with the standard private-good setup where the investing party (i.e., the NGO) should always be the owner.

• Item Type: MPRA Paper
• Language: English
• Keywords: Transaction costs Public goods Property rights Bargaining Incomplete contracts
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory ; Matching Theory; D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; 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 > L31 - Nonprofit Institutions ; NGOs ; Social Entrepreneurship

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