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Optimal Provision of Multiple Excludable Public Goods

  • Hanming Fang
  • Peter Norman

This paper studies the optimal provision mechanism for multiple excludable public goods. For a class of problems with symmetric goods and binary valuations, we show that the optimal mechanism involves bundling if a regularity condition, akin to a hazard rate condition, on the distribution of valuations is satisfied. Relative to separate provision mechanisms, the optimal bundling mechanism may increase the asymptotic provision probability of socially efficient public goods from zero to one, and decreases the extent of use exclusions. If the regularity condition is violated, the optimal solution replicates the separate provision outcome for the two-good case. (JEL D82, H41)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.4.1
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File URL: http://www.aeaweb.org/aej/mic/app/2008-0010_app.pdf
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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 2 (2010)
Issue (Month): 4 (November)
Pages: 1-37

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Handle: RePEc:aea:aejmic:v:2:y:2010:i:4:p:1-37
Note: DOI: 10.1257/mic.2.4.1
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
  2. Mark Armstrong, 1999. "Price Discrimination by a Many-Product Firm," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 151-168.
  3. Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
  4. Hellwig, Martin F., 2005. "A utilitarian approach to the provision and pricing of excludable public goods," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 1981-2003, December.
  5. Fang, Hanming & Norman, Peter, 2005. "To Bundle or Not to Bundle," Microeconomics.ca working papers norman-05-06-10-08-19-02, Vancouver School of Economics, revised 10 Jun 2005.
  6. 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.
  7. 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.
  8. repec:rje:randje:v:37:y:2006:i:4:p:946-963 is not listed on IDEAS
  9. Fang, Hanming & Norman, Peter, 2004. "An Efficiency Rationale for Bundling of Public Goods," Microeconomics.ca working papers norman-04-11-21-09-39-13, Vancouver School of Economics, revised 08 Feb 2005.
  10. 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.
  11. Tilman Börgers & Peter Norman, 2009. "A note on budget balance under interim participation constraints: the case of independent types," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(3), pages 477-489, June.
  12. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-85, April.
  13. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-67, March.
  14. Norman,P., 2000. "Efficient mechanisms for public goods with use exclusions," Working papers 15, Wisconsin Madison - Social Systems.
  15. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
  16. Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
  17. Peter Norman, 2004. "Efficient Mechanisms for Public Goods with Use Exclusions," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1163-1188.
  18. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 589-614.
  19. Ledyard, John O. & Palfrey, Thomas R., 2007. "A general characterization of interim efficient mechanisms for independent linear environments," Journal of Economic Theory, Elsevier, vol. 133(1), pages 441-466, March.
  20. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  21. Matthew O Jackson & Hugo F Sonnenschein, 2007. "Overcoming Incentive Constraints by Linking Decisions -super-1," Econometrica, Econometric Society, vol. 75(1), pages 241-257, 01.
  22. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
  23. Crawford, Gregory S. & Cullen, Joseph, 2007. "Bundling, product choice, and efficiency: Should cable television networks be offered a la carte?," Information Economics and Policy, Elsevier, vol. 19(3-4), pages 379-404, October.
  24. Manelli, Alejandro M. & Vincent, Daniel R., 2006. "Bundling as an optimal selling mechanism for a multiple-good monopolist," Journal of Economic Theory, Elsevier, vol. 127(1), pages 1-35, March.
  25. George J. Mailath & Andrew Postlewaite, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 351-367.
  26. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 41-78, March.
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