Public Good Menus and Feature Complementarity

Christian Roessler

No 962, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: The distance metric on the location space for multidimensional public good varieties represents complementarity between the goods features. "Euclidean" feature complementarity has atypical strong properties that lead to a failure of intuition about the optimal-menu design problem. If the population is heterogeneous, increasing the distance between two varieties is welfare-improving in Euclidean space, but not generally. A basic optimal-direction principle always applies: "anticonvex" menu changes increase participation and surplus. A menu replacement is anticonvex if it moves the varieties apart in the common line space. The result extends to some impure public goods with break-even pricing and variety-specic costs. A sufficient condition for menus to be Pareto-optimal is that "personal price" (nominal price plus perceived distance from a variety) is linear in the norm that induces the distance metric.

Keywords: Public Good Menus; complementarity (search for similar items in EconPapers)
JEL-codes: D71 D78 H41 R12 R13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2006
New Economics Papers: this item is included in nep-mic and nep-pbe
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