Optimal Choice of Characteristics for a Non-Excludable Good

Isabelle Brocas

No 5704, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I consider a model where a principal decides whether to produce one unit of an indivisible good (e.g. a private school) and which characteristics it will contain (emphasis on language or science). Agents (parents) are differentiated along two substitutable dimensions: a vertical parameter that captures their privately known valuation for the good (demand for private education), and an horizontal parameter that captures their observable differences in preferences for the characteristics. I analyze the optimal mechanism offered by the principal to allocate the good and show that the principal will produce a good with characteristics more on the lines of the preferences of the agent with the lowest valuation. Furthermore, if the principal has also a private valuation for the good, he will bias the choice of the characteristics against his own preferences.

Keywords: Allocation mechanisms; Non-excludable goods; Vertical and horizontal differentiation; Mechanism design; Externalities (search for similar items in EconPapers)
JEL-codes: D44 D62 (search for similar items in EconPapers)
Date: 2006-05
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Related works:
Journal Article: Optimal choice of characteristics for a nonexcludable good (2008)
Working Paper: Optimal Choice of Characteristics for a non-excludable Good (2006)
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