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Monopolistic Provision of Excludable Public Goods under Private Information

  • Schmitz, Patrick W

This paper characterizes the optimal contract designed by a profit-maximizing monopolist, who can provide an indivisible and excludable public good to a group of n potential consumers, whose valuations are private information. The analysis takes distribution costs and congestion effects into account. The second-best allocation rule, which is welfare-maximizing under the constraint of non-negative profits, is characterized. Properties of the optimal mechanism in the case of many potential consumers are analyzed and it is shown that in this case the monopolist can use simple posted-price contracts. Finally, implications for public intervention are discussed.

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Article provided by in its journal Public Finance = Finances publiques.

Volume (Year): 52 (1997)
Issue (Month): 1 ()
Pages: 89-101

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Handle: RePEc:pfi:pubfin:v:52:y:1997:i:1:p:89-101
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  1. Schmidt, Klaus M., 1996. "The costs and benefits of privatization: An incomplete contracts approach," Munich Reprints in Economics 19773, University of Munich, Department of Economics.
  2. Shapiro, C. & Willing, D.R., 1990. "Economic Rationales For The Scope Of Privatization," Papers 41, Princeton, Woodrow Wilson School - Discussion Paper.
  3. Cairns, Robert D., 1993. "The optimal auction : A mechanism for optimal third-degree price discrimination," Journal of Economic Behavior & Organization, Elsevier, vol. 20(2), pages 213-225, February.
  4. Bigman, David, 1992. "Unanimity and exclusion as mechanisms to eliminate free riding in public goods : Diagrammatical illustrations," Journal of Economic Behavior & Organization, Elsevier, vol. 19(1), pages 101-117, September.
  5. Tirole, J., 1993. "The Internal Organization of Government," Working papers 93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Werner Güth & Martin Hellwig, 1986. "The private supply of a public good," Journal of Economics, Springer, vol. 5(1), pages 121-159, December.
  7. 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.
  8. Auster, Richard D, 1977. "Private Markets in Public Goods (or Qualities)," The Quarterly Journal of Economics, MIT Press, vol. 91(3), pages 419-30, August.
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