Optimal Ownership of Public Goods in the Presence of Transaction Costs

16 Pages Posted: 14 Nov 2016

See all articles by Daniel Müller

Daniel Müller

University of Würzburg

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Date Written: November 2016

Abstract

A non-governmental organization (NGO) can make a non-contractible investment to provide a public good. Only ownership can be specified ex ante, so ex post efficiency requires reaching an agreement with the government. Besley and Ghatak (2001) argue that the party with the larger valuation should be the owner. We show that when transaction costs have to be incurred before the bargaining stage can be reached, ownership by the government can be optimal even when the NGO has a larger valuation. Our finding also contrasts with the standard private-good setup where the investing party (i.e., the NGO) should always be the owner.

Keywords: Bargaining, Incomplete Contracts, Property rights, Public Goods, transaction costs

JEL Classification: C78, D23, D86, H41, L31

Suggested Citation

Müller, Daniel and Schmitz, Patrick W., Optimal Ownership of Public Goods in the Presence of Transaction Costs (November 2016). CEPR Discussion Paper No. DP11632. Available at SSRN: https://ssrn.com/abstract=2869087

Daniel Müller (Contact Author)

University of Würzburg ( email )

Sanderring 2
Würzburg, 97070
Germany

Patrick W. Schmitz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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