Multi-agent Bargaining under Asymmetric Information: Retrofitting an Elevator

It is well know that asymmetric information might lead to underprovision of public goods. To test the theoretical prediction, we study the decision to retrofit an elevator into an old apartment building, in which each owner has to agree on how the investment cost is split. The asymmetric information aspect is due to partly unobserved individual valuations of an elevator. We tailor Hellwig (2003) to the features of the retrofitting problem and use this to predict which building characteristics should make it easier for owners to agree. Data from Copenhagen broadly support the model's predictions. We use transaction data to estimate the market value of an elevator and conclude that for approximately 30-40 percent of the buildings without an elevator the aggregate increase in value exceeds the investment cost.