Public Versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks

Patrick Schmitz and Eva Hoppe

No 7056, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The government wants a certain good or service to be provided. Should the required assets be publicly or privately owned or should a partnership be formed? Building on the incomplete contracting approach, we argue that the initially specified quantity of an ex ante describable basic good can have important effects on investment incentives, which has been neglected in the literature so far. We also study how the tasks of investing in quality improvements and cost reductions should be assigned. We show how the optimal contracts and governance structures depend on the exogenous parameters of the model such as the nature of the investments and the parties' bargaining powers.

Keywords: Contractible control; Incomplete contracts; Privatization (search for similar items in EconPapers)
JEL-codes: D23 D86 H11 L33 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-cta and nep-pbe
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Citations: View citations in EconPapers (4)

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Journal Article: Public versus private ownership: Quantity contracts and the allocation of investment tasks (2010)
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