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Public Ownership: Three Proposals for Resource Allocation

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Type: Working Paper
Author: Roemer, John E.; Silvestre, Joaquim
Date: 1989
Series: Working Paper Series, no. 307
URI: https://hdl.handle.net/10535/4971
Sector: General & Multiple Resources
Subject(s): cooperatives
common pool resources
public goods and bads
Abstract: "While there is a quite clear picture of the rights that private ownership bestows upon the owner, it is not clear what property rights the public have by virtue of their owning a thing collectively. We ask: how should a planner, whose job is to respect public ownership of some productive assets, in conjunction with private ownership of some inputs, allocate resources? We insist throughout on the desideratum that: (1) the final allocation be Pareto efficient. We propose three additional desiderata: (2) equal division of benefits derived from public ownership; (3) equal returns to the use of privately owned inputs; (4) universal gain from improvements in the publicly owned asset. No more than one of (2). (3) and (4) is in general compatible with (1). Each of the three compatible pairs of desiderata characterizes a proposal for public ownership. We call the equal benefit solution the one characterized by (1)-(2). the proportional solution the one characterized by (1)-(3) and the constant returns equivalent mechanism the one characterized by (1)-(4). A discussion of these ideas in different institutions (a publicly owned firm, a cooperative and a common pool resource) leads us to advocate the proportional solution. Our main formal results are (a) the existence of proportional solutions in convex economies with arbitrary consumption sets and many inputs, outputs and firms and (B) the axiomatic characterization of the constant returns equivalent mechanism. Some simulations illustrate a surprising similarity between the proportional solution and the constant returns equivalent mechanism."

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