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Optimal Choice of Characteristics for a Non-Excludable Good

  • Brocas, Isabelle
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    I consider a model where a principal decides whether to produce one unit of an indivisible good (e.g. a private school) and which characteristics it will contain (emphasis on language or science). Agents (parents) are differentiated along two substitutable dimensions: a vertical parameter that captures their privately known valuation for the good (demand for private education), and an horizontal parameter that captures their observable differences in preferences for the characteristics. I analyze the optimal mechanism offered by the principal to allocate the good and show that the principal will produce a good with characteristics more on the lines of the preferences of the agent with the lowest valuation. Furthermore, if the principal has also a private valuation for the good, he will bias the choice of the characteristics against his own preferences.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5704.

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    Date of creation: May 2006
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    Handle: RePEc:cpr:ceprdp:5704
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    8. Wildasin, David E., 1979. "Local public goods, property values, and local public choice," Journal of Urban Economics, Elsevier, vol. 6(4), pages 521-534, October.
    9. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
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