Bundling Public and Private Goods
Adobe Acrobat PDF
I review cases in which developers have chosen to conserve local environmental amenities as part of a profit-oriented strategy. The proximity of these amenities adds more to the value of the property than could have been gained by destroying them and building more residences. I show that this is consistent with a theoretical proposition not previously noted: a price discriminating monopolistic supplier of a private good that may be bundled with a local public good should provide the public and private goods at a Pareto efficient level: there is no underprovision of the public good in this case. Even though there is no market for the public good the fact that its provision alters customers' willingness to pay for the private good will ensure that it is provided efficiently, provided that this willingness to pay can be captured by the seller of the private goods.
Source: Working paper
Heal, Geoffrey. "Bundling Public and Private Goods." Working paper, Columbia Business School, July 2001.