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Optimal ownership of public goods in the presence of transaction costs

Daniel Müller and Patrick Schmitz

Economics Letters, 2017, vol. 152, issue C, 88-92

Abstract: A non-governmental organization (NGO) can make a non-contractible investment to provide a public good. Only ownership can be specified ex ante, so ex post efficiency requires reaching an agreement with the government. Besley and Ghatak (2001) argue that the party with the larger valuation should be the owner. We show that when transaction costs have to be incurred before the bargaining stage can be reached, ownership by the government can be optimal even when the NGO has a larger valuation. Our finding also contrasts with the standard private-good setup where the investing party (i.e., the NGO) should always be the owner.

Keywords: Transaction costs; Public goods; Property rights; Bargaining; Incomplete contracts (search for similar items in EconPapers)
JEL-codes: D23 D86 C78 H41 L31 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Optimal Ownership of Public Goods in the Presence of Transaction Costs (2017) Downloads
Working Paper: Optimal Ownership of Public Goods in the Presence of Transaction Costs (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:152:y:2017:i:c:p:88-92

DOI: 10.1016/j.econlet.2017.01.011

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