Control Rights in Public-Private Partnerships

Abhinay Muthoo and Marco Francesconi

No 5733, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: D02 D23 H41 L31 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: Control Rights in Public-Private Partnerships (2006)
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