DP10110 | Optimal Ownership of Public Goods Reconsidered

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17/08/2014

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Abstract

Consider a non-governmental organization (NGO) that can invest in a public good. Should the government or the NGO own the public project? In an incomplete contracting framework with split-the-difference bargaining, Besley and Ghatak (2001) argue that the party who values the public good most should be the owner. We demonstrate the robustness of their insight when the split-the-difference rule is replaced by the deal-me-out solution. Our finding is in contrast to the private good results of Chiu (1998) and De Meza and Lockwood (1998), who show that the optimal ownership structure crucially depends on whether the split-the-difference rule or the deal-me-out solution is used.