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Optimal Ownership of Public Goods in the Presence of Transaction Costs

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  • Schmitz, Patrick W.
  • Müller, Daniel
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.

Suggested Citation

  • Schmitz, Patrick W. & Müller, Daniel, 2016. "Optimal Ownership of Public Goods in the Presence of Transaction Costs," CEPR Discussion Papers 11632, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11632
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    References listed on IDEAS

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    1. Luca Anderlini & Leonardo Felli & Giovanni Immordino, 2019. "Costly Pretrial Agreements," The Journal of Legal Studies, University of Chicago Press, vol. 48(1), pages 159-188.
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    7. Halonen-Akatwijuka, Maija, 2012. "Nature of human capital, technology and ownership of public goods," Journal of Public Economics, Elsevier, vol. 96(11), pages 939-945.
    8. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership of Public Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1343-1372.
    9. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    10. Müller, Daniel & Schmitz, Patrick W., 2016. "Transaction costs and the property rights approach to the theory of the firm," European Economic Review, Elsevier, vol. 87(C), pages 92-107.
    11. Schmitz, Patrick W., 2015. "Government versus private ownership of public goods: The role of bargaining frictions," Journal of Public Economics, Elsevier, vol. 132(C), pages 23-31.
    12. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    Cited by:

    1. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    2. Schmitz, Patrick W. & Kusterer, David J., 2018. "Government versus Private Ownership of Public Goods: Experimental Evidence," CEPR Discussion Papers 13204, C.E.P.R. Discussion Papers.
    3. Kusterer, David J. & Schmitz, Patrick W., 2020. "Public goods, property rights, and investment incentives: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 514-532.

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    More about this item

    Keywords

    Transaction costs; Public goods; Property rights; Bargaining; Incomplete contracts;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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