Pre-negotiation commitment and internalization in public good provision through bilateral negotiations

Abstract

We investigate public good provision through bilateral negotiations between a public-good supplier and the beneficiaries of the good. We find that although a prenegotiation commitment on the production level of the public good by the supplier enhances the internalization of beneficiaries' preferences, the good is not necessarily provided efficiently. We show that with the commitment, the supplier produces the public good at an efficient level in equilibrium if and only if its bargaining power is sufficiently weak. In addition, the public good may be produced excessively as a result of the commitment when the supplier's bargaining power is sufficiently strong.

Negotiating over payments for wetland ecosystem services

“…Proposition 6 suggests that the effectiveness of wetland PES schemes improves following the involvement of the social planner, even when wetland creation does not provide amenity services. Also, it is analogous to the result obtained by Matsushima and Shinohara (2019), who found that the public good, corresponding to wetland creation in our model, will be under provided in equilibrium and the beneficiaries will enjoy the public good at no cost.…”

“…In this scenario of a single provider ($$$ m=1 $$$) with $$$ n $$$ beneficiaries, the role of the social planner to achieve the constrained first‐best social optimum is important to solve the free‐riding issue of the beneficiaries. As pointed out by Matsushima and Shinohara (2019), when the provider does not commit to the production of a public good before negotiations, the amount of the public good is not produced efficiently and the beneficiaries have strong incentives to free ride.…”

Interregional negotiations and strategic delegation under government subsidy schemes

“…Furthermore, an extension to our setting that includes multiple regions that benefit from public projects would also be interesting. The models of previous studies (e.g., Dixit & Olson, 2000; Matsushima & Shinohara, 2019; Ray & Vohra, 1997, 2001) might be useful to this extension.…”