Pre-negotiation commitment and internalization in public good provision through bilateral negotiations

Noriaki Matsushima and Ryusuke Shinohara

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: We investigate public good provision through bilateral negotiations between a public-good supplier and the beneficiaries of the good. We find that although a pre-negotiation commitment on the production level of the public good by the supplier enhances the internalization of beneficiaries' preferences, the good is not necessarily provided efficiently. We show that with the commitment, the supplier produces the public good at an efficient level in equilibrium if and only if its bargaining power is sufficiently weak. In addition, the public good may be produced excessively as a result of the commitment when the supplier's bargaining power is sufficiently strong.

Date: 2015-09, Revised 2017-08
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:0948r

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