Optimal ownership of public goods under ideological conflicts

Abstract

Besley and Ghatak (2001) discuss the optimal ownership structure of public goods in the presence of non-contractible decisions on the project design to demonstrate the robustness of their main result. They claim that when the owner dictates the design, allocating ownership of public goods to a key investor with a lower valuation of the goods may be optimal. This study extends their discussion by incorporating a contest framework to determine the design of public goods. We show that when the contest winner determines the project design, allocating ownership of public goods to a non-investor with a lower valuation of the goods can be optimal under intense conflict. Our results have implications for collaborative relationships among stakeholders involved in providing public goods within organizations, such as faculties and trustees of colleges and universities, from the viewpoint of investment incentives.

Keywords: Public goods, ownership, Incomplete contracts, Investment incentives, Contest.

JEL Classification: C72, D23, D86, H41