Incomplete Contracts and Optimal Ownership of Public Goods

13 Pages Posted: 28 Sep 2012

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Date Written: September 2012


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 Classification: D23, D86, H41, L31

Suggested Citation

Schmitz, Patrick W., Incomplete Contracts and Optimal Ownership of Public Goods (September 2012). CEPR Discussion Paper No. DP9141, Available at SSRN:

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Cologne, 50923


Centre for Economic Policy Research (CEPR)

United Kingdom

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