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Optimal Ownership of Public Goods in the Presence of Transaction Costs

Daniel Müller and Patrick Schmitz

No 11632, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: Bargaining; Incomplete Contracts; Property rights; Public Goods; transaction costs (search for similar items in EconPapers)
JEL-codes: C78 D23 D86 H41 L31 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-cta and nep-mic
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Journal Article: Optimal ownership of public goods in the presence of transaction costs (2017) Downloads
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