An Incomplete Contract Perspective on Public Good Provision

Abstract

Abstract. This paper surveys what can be learned from recent advances in the incomplete contract literature to understand how public goods are or should be provided. The paper starts with a section on the full information case that presents and discusses the classical Samuelson condition on the optimal provision of public goods. The rest of the paper presents results under asymmetric information. It is constituted of two main parts. In the first one, the social planner has complete contracting ability. We discuss the basic setting and assumptions of this comprehensive contracting approach and study the trade-offs it generates. The second part of the paper is devoted to the study of contracting incompleteness. Such incompleteness can emerge from various sources, which we present and discuss. We then study the case of a politically chosen decision-maker and the consequences of its inability to commit for more than one period and of the ability for individuals to form groups. Finally, we address the problem of the choice between public and private forms of public good provision. The concluding section summarizes the main policy lessons.

Infrastrukturen neu denken: gesellschaftliche Funktionen und Weiterentwicklung

“…Aber auch Skalen-und Verbundvorteile kön-nen Anlass für die Kooperation von Kommunen sein. Die genaue Ausgestaltung juristischer Konstruktionen und Finanzierungsformen hängt dabei stark von den verfügbaren Informationen der Kooperationspartner und den inhärenten Anreizstrukturen ab (Martimort et al 2005).…”

An Incomplete Contracts Perspective on the Provision and Pricing of Excludable Public Goods

“…7 For an overview, see Hellwig (1996) or Tirole (1999). A survey of the implications of incomplete contracting for public-goods provision is provided by Martimort et al (2005).…”

Citizen participation in pollution permit markets

“…In Example 1.2, the sign ofc n Àc a can be positive or negative, depending on the relative slopes of aggregate marginal abatement cost curve and marginal damage curve. 11 Even if their lobbying costs increase, citizens' total costs may still be lower when they are allowed to purchase permits, provided there is a large enough decrease in emissions. This is indeed the case.…”

“…For any attainable allocation of permits e 0 , the value hðe 0 Þ is defined by e 0 ¼ eð1; hðe 0 ÞÞ 7. For a recent survey of models with asymmetric information see Martimort et al[11]. See, Ledyard[8] for a summary of experimental evidence.…”