Working Paper: CEPR ID: DP9141
Authors: Patrick W. Schmitz
Abstract: The government and a non-governmental organization (NGO) can invest in the provision of a public good. In an incomplete contracting framework, Besley and Ghatak (2001) have argued that the party who values the public good most should be the owner. We show that this conclusion relies on their assumption that the parties split the renegotiation surplus 50:50. If the generalized Nash bargaining solution is applied, then for any pair of valuations that the two parties may have, there exist bargaining powers such that either ownership by the government or by the NGO can be optimal.
Keywords: Incomplete Contracts; Investment Incentives; Ownership; Public Goods
JEL Codes: D23; D86; H41; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ownership structure (G32) | investment incentives (O31) |
| bargaining powers of the government and the NGO (L39) | optimal ownership structure (G32) |
| equal bargaining powers (C78) | ownership assigned to party that values public good most (H13) |
| different bargaining powers (C79) | optimal ownership shifts (G32) |