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An Efficiency Rationale for Bundling of Public Goods

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Abstract

This paper studies the role of bundling in the efficient provision of excludable public goods. We show that bundling in the provision of unrelated public goods can enhance social welfare. With a large number of goods and agents, first best can be approximated with pure bundling. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that bundling alleviates the free riding problem in large economies and decreases the extent of use exclusions. Both results are related to the idea that bundling makes it possible to reduce the incidence of exclusions because the variance in the relevant valuations decreases.

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File URL: http://cowles.econ.yale.edu/P/cd/d14a/d1441.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1441.

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Length: 52 pages
Date of creation: Oct 2003
Date of revision:
Handle: RePEc:cwl:cwldpp:1441

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Public goods provision; Bundling; Exclusion;

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  1. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  2. Peter Cramton & Robert Gibbons & Paul Klemperer, 1985. "Dissolving a Partnership Efficiently," Working papers 406, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Matthew O Jackson & Hugo F Sonnenschein, 2003. "The Linking of Collective Decisions and Efficiency," NajEcon Working Paper Reviews 666156000000000057, www.najecon.org.
  4. Dana Jr. James D., 1993. "The Organization and Scope of Agents: Regulating Multiproduct Industries," Journal of Economic Theory, Elsevier, vol. 59(2), pages 288-310, April.
  5. Hellwig, Martin, 2003. "A Utilitarian Approach to the Provision and Pricing of Excludable Public Goods," Sonderforschungsbereich 504 Publications 03-36, Sonderforschungsbereich 504, Universit├Ąt Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  6. Armstrong, M., 1996. "Price discrimination by a many-product firm," Discussion Paper Series In Economics And Econometrics 9628, Economics Division, School of Social Sciences, University of Southampton.
  7. Norman,P., 2000. "Efficient mechanisms for public goods with use exclusions," Working papers 15, Wisconsin Madison - Social Systems.
  8. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  10. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 589-614.
  12. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  13. Paul Milgrom & Robert Weber, 1981. "Distributional Strategies for Games with Incomplete Information," Discussion Papers 428R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  15. Mailath, George J & Postlewaite, Andrew, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 351-67, July.
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Cited by:
  1. Hanming Fang & Peter Norman, 2003. "To Bundle or Not to Bundle," Cowles Foundation Discussion Papers 1440, Cowles Foundation for Research in Economics, Yale University.
  2. Hitoshi Matsushima & Koichi Miyazaki & Nobuyuki Yagi, 2006. "Role of Linking Mechanisms in Multitask Agency with Hidden Information," CIRJE F-Series CIRJE-F-401, CIRJE, Faculty of Economics, University of Tokyo.
  3. Suman Ghosh & Alexander Karaivanov & Mandar Oak, 2007. "A Case for Bundling Public Goods Contributions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 425-449, 06.
  4. Hanming Fang & Peter Norman, 2003. "Optimal Provision of Multiple Excludable Public Goods," Cowles Foundation Discussion Papers 1441R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2006.
  5. Martin Hellwig, 2004. "Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_14, Max Planck Institute for Research on Collective Goods.
  6. Hitoshi Matsushima & Koichi Miyazaki & Nobuyuki Yagi, 2006. "Role of Linking Mechanisms in Multitask Agency with Hidden Information ( Revised as CARF-F-209(2010) )," CARF F-Series CARF-F-059, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  7. Hellwig, Martin, 2003. "A Utilitarian Approach to the Provision and Pricing of Excludable Public Goods," Sonderforschungsbereich 504 Publications 03-36, Sonderforschungsbereich 504, Universit├Ąt Mannheim;Sonderforschungsbereich 504, University of Mannheim.

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