Institutional Regulation of Public Provision

Werner Güth

doi:10.1515/rle-2013-0008

Article

Institutional Regulation of Public Provision

Werner Güth

Published/Copyright: June 6, 2014

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From the journal Review of Law & Economics Volume 10 Issue 1

Abstract

After demonstrating that institutional design based on the rational choice approach is hardly ever applicable, we suggest a procedural alternative and demonstrate its applicability with a focus on the supply side of public authorities, i.e., on the “productive state.” Whereas the former approach, based on unrealistic common knowledge assumptions, is consequentialistic, procedural fairness relies on appealing requirements of non-arbitrariness and equal treatment. In our view, game theoretic mechanism design is useful to explore the consequentialistic – e.g., welfaristic – potential but is, except for specific situations, not implementable. Compared to this, procedural fairness is in line with actually used procedures and legal traditions. Although game theoretic mechanism design can be informative, its unrealistic assumptions justify the procedural approach, which can be rigorously defined by intuitive fairness requirements.

Keywords: institutional regulation; public provision; public procurement

Acknowledgments

The author is very grateful for the suggestions and constructive advice by an anonymous referee and Francesco Parisi. Without the latter’s help, this paper would not have been written.

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1
Auctions are special games which by their definition already qualify as direct mechanisms.
2
What 0 payoffs for all i in case of the status quo captures is that we require fair rules for changes when giving up the status quo.
3
All bid strategies bi=bipall p∈Ω with bip≥i’s true evaluation of p for some p∈Ω are weakly dominated.
4
In a democracy this might allow a minimal supply of minority projects to be publicly provided.
5
Fair division refers to conflict resolution when terminating a joint venture.
6
Mixed feelings imply that public projects may harm some and help others.

Published Online: 2014-6-6

Published in Print: 2014-3-1

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https://doi.org/10.1515/rle-2013-0008

Keywords for this article

institutional regulation; public provision; public procurement