COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1441

An Efficiency Rationale for Bundling of Public Goods

Hanming Fang and Peter Norman

October 2003

This paper studies the role of bundling in the efficient provision of excludable public goods. We show that bundling in the provision of unrelated public goods can enhance social welfare. With a large number of goods and agents, first best can be approximated with pure bundling. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that bundling alleviates the free riding problem in large economies and decreases the extent of use exclusions. Both results are related to the idea that bundling makes it possible to reduce the incidence of exclusions because the variance in the relevant valuations decreases.

Keywords: Public goods provision, Bundling, Exclusion

JEL Classification: H41