Monopolistic Provision of Excludable Public Goods Under Private Information
Public Finance, Vol. 52, No. 1, pp. 89-101, 1997
Posted: 19 Feb 2003
There are many commodities that possess the characteristic of non-rivalness in consumption even though exclusion is possible. The focus of this paper is the optimal contract designed by a profit-maximizing monopolist, who can provide an excludable public good to a group of n potential consumers, when the consumers' valuations are private information. Distribution costs and congestion effects are taken into account and the results are related to the cases of private goods and pure public goods. Moreover, the second-best allocation rule, which is welfare-maximizing under the constraint of non-negative profits, is characterized. Interesting properties of the optimal mechanism in the case of many potential consumers are analyzed. The results are less pessimistic than related results from the literature on pure public goods. Furthermore, it turns out that in the limit the monopolist can use simple posted-price contracts. Implications of the model for public intervention are also briefly discussed.
JEL Classification: D82, H41
Suggested Citation: Suggested Citation