The optimal supply of congested public goods for homogeneous and heterogeneous customers

Tchai Tavor and Uriel Spiegel

The Journal of International Trade & Economic Development, 2016, vol. 25, issue 1, 103-130

Abstract: Impure public goods resulting from the congestion effect are discussed in the literature solely for the case of homogenous populations where consumers have identical demands. We extend this to include heterogeneous populations, where demands are rectangularly distributed. We compare the optimal values of the control variables (quantity of the public good and the number of users) for both homogeneous and heterogeneous populations, as well as the social optimum values for both cases. We distinguish between two kinds of congestion effects: (1) increased usage which negatively affects the individual consumer's utility, and (2) the affect is located on the supply side, i.e. higher production costs due to an increased number of users.

Date: 2016
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DOI: 10.1080/09638199.2015.1040054

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