Elsevier

Journal of Public Economics

Volume 132, December 2015, Pages 23-31
Journal of Public Economics

Government versus private ownership of public goods: The role of bargaining frictions

Under a Creative Commons license
open access

Highlights

Government and NGO can invest in provision of a public good.

Who should be the owner of the public project when contracts are incomplete?

Frictionless negotiations: Party that values public good most should be owner.

Ex post bargaining frictions: Optimal ownership structure depends on technology.

Differences between public and private goods are smaller than previously thought.

Abstract

The government and a non-governmental organization (NGO) can invest in the provision of a public good. Who should be the owner of the public project? In an incomplete contracting model in which ex post negotiations are without frictions, the party that values the public good most should be the owner, regardless of technological aspects. However, under the plausible assumption that there are bargaining frictions, the optimal ownership structure depends on technological aspects and on the parties' valuations. We show that the differences between incomplete contracting models with public goods and private goods are thus smaller than has previously been thought.

Keywords

Ownership
Incomplete contracts
Investment incentives
Bargaining frictions
Public goods

JEL classification

D23
D86
C78
H41
L31

I would like to thank three anonymous referees and the co-editor for making valuable comments and suggestions. I have also benefitted from very helpful discussions with Eva Hoppe. Furthermore, I gratefully acknowledge financial support under the Institutional Strategy of the University of Cologne within the German Excellence Initiative (Hans-Kelsen-Prize 2015).