Public versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks

29 Pages Posted: 28 Feb 2009 Last revised: 17 Dec 2009

Eva I. Hoppe

University of Cologne - Department of Economics

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2009

Abstract

The government wants a certain good or service to be provided. Should the required assets be publicly or privately owned or should a partnership be formed‘ Building on the incomplete contracting approach, we argue that the initially specified quantity of an ex ante describable basic good can have important effects on investment incentives, which has been neglected in the literature so far. We also study how the tasks of investing in quality improvements and cost reductions should be assigned. We show how the optimal contracts and governance structures depend on the exogenous parameters of the model such as the nature of the investments and the parties' bargaining powers.

Keywords: Incomplete contracts, Contractible control, Privatization

JEL Classification: D86, D23, L33, H11

Suggested Citation

Hoppe, Eva I. and Schmitz, Patrick W., Public versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks (November 2009). Available at SSRN: https://ssrn.com/abstract=1350386 or http://dx.doi.org/10.2139/ssrn.1350386

Eva I. Hoppe

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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