Public Goods, Property Rights, and Investment Incentives: An Experimental Investigation

Abstract

Who should own public projects? We report data from a laboratory experiment with 480 participants that was designed to test Besley and Ghatak's (2001) public-good version of the Grossman-Hart-Moore property rights theory. Consider two parties, one of whom can invest in the provision of a public good. The parties value the public good differently. Besley and Ghatak (2001) argue that more investments will be made if the high-valuation party is the owner, regardless of whether or not this party is the investor. While our experimental results provide support for the Grossman-Hart-Moore theory, they cast some doubts on the robustness of Besley and Ghatak's (2001) conclusion.

Keywords: Property rights, Public goods, Incomplete contracts, Investment incentives, Laboratory experiments

JEL Classification: D23, D86, H41, L33, C92