Optimal Provision of Multiple Excludable Public Goods
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 demonstrate that the optimal mechanism involves bundling if a regularity condition, akin to a hazard rate condition, on the distribution of valuations is satisfied. Bundling alleviates the free riding problem in large economies in two ways: first, it may increase the asymptotic provision probability of socially efficient public goods from zero to one; second, it decreases the extent of use exclusions. If the regularity condition is violated, then the optimal solution replicates the separate provision outcome.
This paper substantially generalizes and supersedes Fang and Norman (2003), a manuscript that was circulated under the title "An Efficiency Rationale for Bundling of Public Goods." We thank Mark Armstrong, Ted Bergstrom, Martin Hellwig, Larry Samuelson, Stephen Morris and seminar participants at many seminars and conferences for comments and helpful discussions. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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. citation courtesy of