Financing of public goods and noncooperative theory of bargaining

This paper deals with an application of the noncooperative theory of bargaining to the financing of public goods. We characterize the equilibrium of the bargaining game and perform comparative statics with respect to the model parameters. In particular, our results indicate that (i) if agreement from both parties is necessary to provide a public good, the poorer party may make a negative contribution to the provision of a public good, and (ii) if each party is free to provide the public good without the assent of the other party ('outside option principle'), then only non-negative contributions are possible.