45 Pages Posted: 26 Apr 2016 Last revised: 1 Mar 2017
Date Written: Feburary 27, 2017
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: 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