Patrick W. Schmitz
Public Finance, Vol. 52 (1), 1997, 89-101.
Abstract. This paper characterizes the optimal contract designed by a profit-maximizing monopolist, who can provide an indivisible and excludable public good to a group of n potential consumers, whose valuations are private information. The analysis takes distribution costs and congestion effects into account. The second-best allocation rule, which is welfare-maximizing under the constraint of non-negative profits, is characterized. Properties of the optimal mechanism in the case of many potential consumers are analyzed and it is show that in this case the monopolist can use simple posted-price contracts. Finally, implications for public intervention are discussed.
The working paper version is available for download at SSRN.