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Pre-negotiation Commitment and Internalization in Public Good Provision through Bilateral Negotiations

50 Pages Posted: 25 Sep 2015 Last revised: 2 Sep 2017

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Ryusuke Shinohara

Department of Economics, Hosei University

Date Written: August 31, 2017

Abstract

We investigate public good provision through bilateral negotiations between a public-good supplier and the beneficiaries of the good. We find that although a pre-negotiation commitment on the production level of the public good by the supplier enhances the internalization of beneficiaries' preferences, the good is not necessarily provided efficiently. We show that 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 may be 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

Matsushima, Noriaki and Shinohara, Ryusuke, Pre-negotiation Commitment and Internalization in Public Good Provision through Bilateral Negotiations (August 31, 2017). ISER Discussion Paper No. 948. Available at SSRN: https://ssrn.com/abstract=2665505

Noriaki Matsushima (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Ryusuke Shinohara

Department of Economics, Hosei University ( email )

4342
Aihara-machi
Machida, Tokyo 194-0298
Japan
+81-42-783-2534 (Phone)

HOME PAGE: http://ryusukeshinohara.ehoh.net/

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