Optimal Provision of Multiple Excludable Public Goods

Abstract

This paper studies the optimal provision mechanism for multiple excludable public goods when agents’valuations are private information. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that it involves bundling. Bundling alleviates the free riding problem in large economies in two ways: …rst, it can increase the asymptotic provision probability of socially e¢ cient public goods from zero to one; second, it decreases the extent of use exclusions. Keywords: Public Goods Provision; Bundling; Exclusion JEL Classi…cation Number: H41. This paper was previously titled “An E¢ ciency Rationale for Bundling of Public Goods”. We thank Mark Armstrong, Ted Bergstrom, Martin Hellwig, Larry Samuelson, Stephen Morris and seminar participants at many seminars and conferences for comments and helpful discussions. The usual disclaimer applies. yDepartment of Economics, Yale University, P.O. Box 208264, New Haven, CT 06520-8264. Email: hanming.fang@yale.edu zDepartment of Economics, University of British Columbia, 909-1873 East Mall, Vancouver, BC V6T1Z1. Email: penorman@interchange.ubc.ca

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