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Private Action in Public Interest: The Comparative Governance of Social Costs

45 Pages Posted: 26 Apr 2016 Last revised: 1 Mar 2017

Aseem Kaul

University of Minnesota

Jiao Luo

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: Feburary 27, 2017

Abstract

We adopt a comparative institutional approach to examine the most efficient way of dealing with market frictions that give rise to public interests, defining the distinct transaction costs associated with such frictions, and comparing the efficacy of alternate governance forms in dealing with them. Specifically, we argue that unbounded externalities are best governed by the state, bounded externalities by self-governing collectives, and information asymmetries by non-profits. Further, we argue that for-profit involvement in serving public interests may be required where problems of social cost are combined with production economies and uncertainty. These arguments combine to produce a mapping between the optimal institutional arrangement for serving public interests and the market frictions that give rise to them. Our study thus contributes to work in both public economics and business strategy by developing a holistic theory of how public-private interactions are best governed.

Keywords: market frictions; externalities, information asymmetry; collective action; transaction cost; institutional economics; non-market strategy; non-profit; public-private partnerships, hybrid organizations

JEL Classification: D23, D6, G3, H4, L21, L3, M14, P32

Suggested Citation

Kaul, Aseem and Luo, Jiao, Private Action in Public Interest: The Comparative Governance of Social Costs (Feburary 27, 2017). Available at SSRN: https://ssrn.com/abstract=2769368

Aseem Kaul

University of Minnesota ( email )

321, 19th Avenue S
3-412 Carlson School of Management
Minneapolis, MN 55455
United States

Jiao Luo (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Ave. S
CSOM 3-360
Minneapolis, MN 55455
United States
1-612-626-1907 (Phone)

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