An Incomplete Contract Perspective on Public Good Provision

Posted: 17 Sep 2007 Last revised: 1 Sep 2016

See all articles by David Martimort

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Etienne Billette de Villemeur

Lille University; CNRS - Lille Economics & Managment - UMR 9221

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Abstract

This paper surveys what can be learned from recent advances in the incomplete contract literature to understand how public goods are or should be provided. The paper starts with a section on the full information case that presents and discusses the classical Samuelson condition on the optimal provision of public goods. The rest of the paper presents results under asymmetric information. It is constituted of two main parts. In the first one, the social planner has complete contracting ability. We discuss the basic setting and assumptions of this comprehensive contracting approach and study the trade-offs it generates. The second part of the paper is devoted to the study of contracting incompleteness. Such incompleteness can emerge from various sources, which we present and discuss. We then study the case of a politically chosen decision-maker and the consequences of its inability to commit for more than one period and of the ability for individuals to form groups. Finally, we address the problem of the choice between public and private forms of public good provision. The concluding section summarizes the main policy lessons.

Keywords: Asymmetric information, Incomplete contracts, Public goods

JEL Classification: D82, H40

Suggested Citation

Martimort, David and De Donder, Philippe and Billette de Villemeur, Etienne and Billette de Villemeur, Etienne, An Incomplete Contract Perspective on Public Good Provision. Journal of Economic Surveys, Vol. 19, No. 2, pp. 149-180, April 2005, Available at SSRN: https://ssrn.com/abstract=1014409

David Martimort (Contact Author)

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Etienne Billette de Villemeur

Lille University ( email )

Lille
France

CNRS - Lille Economics & Managment - UMR 9221 ( email )

Lille
France

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