Skema Research > skema-event > kto ofce gredeg research seminar Giuseppe Attanasi

KTO-OFCE-GREDEG Research seminar

Giuseppe Attanasi (University of Lille) will present a paper titled: "Private investment with social benefits under uncertainty: the dark side of public financing"


We develop a game-theoretic model of private-public contribution to a long-term project, with sequential actions and moral hazard. The private agent is in charge of both financial contribution and management effort, the two actions implying private costs, and uncertain ex-post private and social benefits. The public agent decides the amount of financial contribution knowing that the size and the probability to attain a higher surplus ex-post positively depend on the private agent’s effort. We consider different public funding scenarios: benefit-sharing vs. cost-sharing, crossed with ex-ante vs.ex-post government intervention. We test our theoretical predictions through an experiment. On the one hand, the experiment confirms the main result of the model: cost-sharing public intervention is more effective than benefitsharing in boosting private financial contribution to the project. On the other hand, we find that when public contribution comes after private contribution (ex-post government intervention), both public funding scenarios reinforce private contribution but they ‘crowd out’ private management effort. These results have policy implications for strategic investments with long-term social consequences: in deciding the optimal timing and method of contribution, the government should consider not only direct short-term effects of its intervention, but also indirect effects on long-term agents’ management efforts.

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