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An Efficiency Rationale for Bundling of Public Goods

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  • Fang, Hanming
  • Norman, Peter

Abstract

This paper studies the optimal provision mechanism for multiple excludable public goods when agents\' valuations are private information. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that it involves bundling. Bundling alleviates the free riding problem in large economies in two ways: first, it can increase the asymptotic provision probability of socially efficient public goods from zero to one; second, it decreases the extent of use exclusions.

Suggested Citation

  • 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.
  • Handle: RePEc:ubc:pmicro:norman-04-11-21-09-39-13
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    File URL: http://faculty.arts.ubc.ca/pnorman/Research/restudefficiencyrationale.pdf
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    Cited by:

    1. 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.
    2. Hanming Fang & Peter Norman, 2010. "Optimal Provision of Multiple Excludable Public Goods," American Economic Journal: Microeconomics, American Economic Association, vol. 2(4), pages 1-37, November.
    3. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 946-963, December.
    4. Hitoshi Matsushima & Koichi Miyazaki & Nobuyuki Yagi, 2006. "Role of Linking Mechanisms in Multitask Agency with Hidden Information ( Revised as CARF-F-209(2010) )," CARF F-Series CARF-F-059, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    5. Suman Ghosh & Alexander Karaivanov & Mandar Oak, 2007. "A Case for Bundling Public Goods Contributions," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 425-449, June.
    6. Hellwig, Martin, 2004. "Optimal income taxation, public-goods provision and public-sector pricing : a contribution to the foundations of public economics," Papers 04-42, Sonderforschungsbreich 504.
    7. Matsushima, Hitoshi & Miyazaki, Koichi & Yagi, Nobuyuki, 2010. "Role of linking mechanisms in multitask agency with hidden information," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2241-2259, November.

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    More about this item

    Keywords

    Bundling; Public Good Provision; Exclusion;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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