Control Rights in Public-Private Partnerships

37 Pages Posted: 15 Aug 2006

See all articles by Marco Francesconi

Marco Francesconi

University of Essex; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Abhinay Muthoo

University of Essex - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2006

Abstract

This paper develops a theory of the allocation of authority between two parties that produce impure public goods. We show that the optimal allocation depends on technological factors, the parties' valuations of the goods produced, and the degree of impurity of these goods. When the degree of impurity is large, control rights should be given to the main investor, irrespective of preference considerations. There are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party's investment is more important than the other party's. If the parties' investments are of similar importance and the degree of impurity is large, shared authority is optimal with a greater share going to the low-valuation party. If the importance of the parties' investments is similar but the degree of impurity is neither large nor small, the low-valuation party should receive sole authority. We apply our results to a number of situations, including schools and child custody.

Keywords: impure public goods, contractual incompleteness, allocation of authority, investment incentives

JEL Classification: D02, D23, H41, L31

Suggested Citation

Francesconi, Marco and Muthoo, Abhinay, Control Rights in Public-Private Partnerships (June 2006). CEPR Discussion Paper No. 5733. Available at SSRN: https://ssrn.com/abstract=924197

Marco Francesconi (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 873 534 (Phone)
+44 1206 873 151 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Abhinay Muthoo

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 873 333 (Phone)
+44 1206 872 724 (Fax)

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