Pre-negotiation Commitment and Internalization in Public Good Provision through Bilateral Negotiations
50 Pages Posted: 25 Sep 2015 Last revised: 2 Sep 2017
Date Written: August 31, 2017
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: Suggested Citation