The Provision and Pricing of Excludable Public Goods: Ramsey-Boiteux Pricing Versus Bundling

Abstract

This paper studies the relation between Bayesian mechanism design and the Ramsey-Boiteux approach to the provision and pricing of excludable public goods. For a large economy with private information about individual preferences, the two approaches are shown to be equivalent if and only if, in addition to incentive compatibility and participation constraints, the final allocation of private-good consumption and admission tickets to public goods satisfies a condition of renegotiation proofness. Without this condition, a mechanism involving mixed bundling, i.e. combination tickets at a discount, is superior.

Keywords: Mechanism Design, Excludable Public Goods, Ramsey-Boiteux Pricing, Renegotiation Proofness, Bundling

JEL Classification: D61, H21, H41, H42