Working Paper: NBER ID: w13797
Authors: Hanming Fang; Peter Norman
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 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.
Keywords: public goods; bundling; mechanism design; private information
JEL Codes: H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bundling (L14) | asymptotic provision probability of socially efficient public goods (H49) |
| bundling (L14) | extent of use exclusions (G52) |
| violation of the regularity condition (C62) | optimal solution replicates the separate provision outcome (H21) |