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Optimal Choice of Characteristics for a non-excludable Good

Isabelle Brocas ()

No 06.52, IEPR Working Papers from Institute of Economic Policy Research (IEPR)

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)
Pages: 29 pages
Date: 2006-05
New Economics Papers: this item is included in nep-com
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Journal Article: Optimal choice of characteristics for a nonexcludable good (2008) Downloads
Working Paper: Optimal Choice of Characteristics for a Non-Excludable Good (2006) Downloads
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