Public Good Menus and Feature Complementarity
AbstractThe distance metric on the location space for multidimensional public good varieties represents complementarity between the goods features. "Euclidean" feature complementarity has atypical strong properties that lead to a failure of intuition about the optimal-menu design problem. If the population is heterogeneous, increasing the distance between two varieties is welfare-improving in Euclidean space, but not generally. A basic optimal-direction principle always applies: "anticonvex" menu changes increase participation and surplus. A menu replacement is anticonvex if it moves the varieties apart in the common line space. The result extends to some impure public goods with break-even pricing and variety-specic costs. A sufficient condition for menus to be Pareto-optimal is that "personal price" (nominal price plus perceived distance from a variety) is linear in the norm that induces the distance metric.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 962.
Length: 37 pages
Date of creation: 2006
Date of revision:
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Public Good Menus; complementarity;
Find related papers by JEL classification:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-22 (All new papers)
- NEP-MIC-2006-04-22 (Microeconomics)
- NEP-PBE-2006-04-22 (Public Economics)
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