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Optimal Choice of Characteristics for a non-excludable Good

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  • Isabelle Brocas

Abstract

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.

Suggested Citation

  • Isabelle Brocas, 2006. "Optimal Choice of Characteristics for a non-excludable Good," IEPR Working Papers 06.52, Institute of Economic Policy Research (IEPR).
    • Handle: RePEc:scp:wpaper:06-52
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    References listed on IDEAS

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    Cited by:

    1. Brocas, Isabelle, 2014. "Countervailing incentives in allocation mechanisms with type-dependent externalities," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 22-33.
    2. Brocas, Isabelle, 2013. "Selling an asset to a competitor," European Economic Review, Elsevier, vol. 57(C), pages 39-62.

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    More about this item

    Keywords

    Allocation mechanisms; non-excludable goods; vertical and horizontal differentiation; mechanism design; externalities;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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