Optimal ownership of public goods under asymmetric information

Abstract

Consider two parties who can make non-contractible investments in the provision of a public good. Who should own the physical assets needed to provide the public good? In the literature it has been argued that the party who values the public good most should be the owner, regardless of the investment technologies.Yet, this result has been derived under the assumption of symmetric information.We show that technology matters when the negotiations over the provision of the public good take place under asymmetric information. If party A has a better investment technology, ownership by party A can be optimal even when party B has a larger expected valuation of the public good.

How (Not) to Purchase Novel Goods and Services: Specific Performance Versus At-Will Contracts

“…For instance, when the buyer is an expert and has access to an e¤ective monitoring technology, then it might be less likely that the seller will be able to gain an informational advantage over the buyer.21 So far, there are only a few papers that have studied investment incentives in incomplete contracting models with asymmetric information, cf Schmitz (2006Schmitz ( , 2008Schmitz ( , 2017Schmitz ( , 2021,Goltsman (2011),Lau (2011),Goldlücke and Schmitz (2014),Vasconcelos (2014),Su (2017b), andChoi andTriantis (2021)…”