The 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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Length: 37 pages Date of creation: 2006 Date of revision: Handle: RePEc:mlb:wpaper:962
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