Abstract
This paper examines the privatization problem of road services, based on the property rights approach to problems caused by incomplete contracting. Taking it into consideration that roads are a club good, the quality and management cost of road services are picked out as criteria for judging whether to privatize those services or not. Since ex ante investments by the manager are indispensable for improving them, an incentive problem with ex ante investments is investigated, based on the property rights approach pioneered by Grossman and Hart (1986) . The conclusions of this paper are as follows: (i) private enterprise can induce the manager to make more ex ante investments than governmental enterprise. However, the privatization is not necessarily desirable, (ii) when the effect of a reduction in the management cost is offset by a deterioration of the service quality, and/or (iii) when the governmental enterprise can induce the manager to make ex ante investments on a sufficient level.
