Encouraging Private Ownership of Public Goods: Theory and Evidence from Belgium

We study short-run and long-run effects of a government subsidy to private nonprofit ownership of public good projects. In a simple model, we show that the subsidy increases the prices of project assets in the short run; however, the effect does not persist and prices decline in the long run. This happens because the subsidy temporarily relaxes the resource constraint of non-profit organizations, which allows them to engage in supply-expanding activities. We test this prediction using a unique dataset that we have constructed from Belgian notarial land-transaction records and exploiting a policy reform in public subsidies for land purchases by non-profits aiming at creating privately owned natural reserves. Using the MS-estimation method (Maronna and Yohai, 2000) robust to outliers, we also provide a methodological contribution to the analysis of markets with quasi-donations.