Pre-negotiation Commitment and Internalization in Public Good Provision through Bilateral Negotiations
64 Pages Posted: 25 Sep 2015 Last revised: 12 Dec 2019
Date Written: August 31, 2017
A profit-maximizing public good supplier endogenously determines the level of the public good and simultaneously negotiates with beneficiaries of the good one by one. A pre-negotiation commitment on the production level of the public good by the supplier enhances the internalization of beneficiaries’ preferences. With the commitment, the supplier produces the public good at an efficient level in equilibrium if and only if its bargaining power is sufficiently weak. In addition, the public good is produced excessively as a result of the commitment when the supplier’s bargaining power is sufficiently strong.
Keywords: Public good; Simultaneous bilateral bargaining; Supplier bargaining power; Nash bargaining solution
JEL Classification: C78, D42, H41, H44
Suggested Citation: Suggested Citation