Working Paper: CEPR ID: DP16003
Authors: Patrick W. Schmitz
Abstract: Consider two parties who can make non-contractible investments in the provision of a public good. Who should own the physical assets needed to provide the public good? In the literature it has been argued that the party who values the public good most should be the owner, regardless of the investment technologies. Yet, this result has been derived under the assumption of symmetric information. We show that technology matters when the negotiations over the provision of the public good take place under asymmetric information. If party A has a better investment technology, ownership by party A can be optimal even when party B has a larger expected valuation of the public good.
Keywords: Incomplete Contracts; Control Rights; Public Goods; Private Information; Investment Incentives
JEL Codes: D23; D86; D82; C78; L33; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment Technology (G11) | Optimal Ownership Structure (G32) |
| Party A's Superior Investment Technology (G11) | Party A Owns Public Good (H41) |
| Ownership Structure (G32) | Expected Payoffs (C79) |
| Asymmetric Information (D82) | Negotiation Outcomes (C78) |
| Symmetric Information (D82) | Ownership Structures Determined by Expected Valuations (G32) |