An Incomplete Contracts Perspective on the Provision and Pricing of Excludable Public Goods
Felix J. Bierbrauer
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods
MPI Collective Goods Preprint, No. 2010/01
We study whether a firm that produces and sells access to an excludable public good should face a self-financing requirement, or, alternatively, receive subsidies that help to cover the cost of public-goods provision. The main result is that the desirability of a self-financing requirement is shaped by an equity-efficiency trade-off: While first-best efficiency is out of reach with such a requirement, its imposition limits the firm's ability of rent extraction. Hence, consumer surplus may be higher if the firm has no access to public funds.
Number of Pages in PDF File: 43
Keywords: Incomplete Contracts, Excludable Public Goods, Regulation
JEL Classification: D82, D86, H41, L51
Date posted: January 7, 2010 ; Last revised: April 26, 2010
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