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Charity Auctions for the Happy Few

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  • Olivier Bos

Abstract

Recent literature has shown that all-pay auctions raise more money for charity than winner-pay auctions. We demonstrate that the first and second-price winner-pay auctions generate higher revenue than first-price all-pay auctions when bidders are sufficiently asymmetric. To prove it, we consider a framework with complete information. This analysis is relevant for two main reasons. On the one hand, complete information is more realistic and corresponds to events which occur for instance in a local service club (like in a voluntary organization) or in a show business dinner. Potential bidders are acquaintances or know one another well. On the other hand, our model keeps the qualitative predictions of a private value model under incomplete information in which bidders are ex ante asymmetric, which means that bidders’ values are drawn from different distributions. Furthermore, we also analyze second-price all-pay auction. Finally, we show that individual minimum bids could improve the relative revenue performance of first-price all-pay compared to first-price winner-pay auction.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2398.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2398

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Keywords: all-pay auctions; charity; complete information; externalities;

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References

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  1. Hendricks, Ken & Weiss, Andrew & Wilson, Charles A, 1988. "The War of Attrition in Continuous Time with Complete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 663-80, November.
  2. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers, UCLA Department of Economics 452, UCLA Department of Economics.
  3. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, American Economic Association, vol. 83(1), pages 289-94, March.
  4. David Ettinger, 2003. "Bidding among Friends and Enemies," Working Papers, Fondazione Eni Enrico Mattei 2003.23, Fondazione Eni Enrico Mattei.
  5. Baye, M. & Kovenock, D. & Vries, C. de, 1990. "The All-Pay Auction with Complete Information," Discussion Paper, Tilburg University, Center for Economic Research 1990-51, Tilburg University, Center for Economic Research.
  6. Jeffrey Carpenter & Jessica Holmes & PeterHans Matthews, 2008. "Charity auctions: a field experiment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(525), pages 92-113, 01.
  7. Yeon-Koo Che & Ian Gale, 1998. "Caps on Political Lobbying," Microeconomics, EconWPA 9809003, EconWPA.
  8. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1998. "Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(4), pages 828-853, August.
  9. Maxim Engers & Brian McManus, 2007. "Charity Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 953-994, 08.
  10. Emiel Maasland & Sander Onderstal, 2003. "Auctions with Financial Externalities," Working Papers, Fondazione Eni Enrico Mattei 2003.30, Fondazione Eni Enrico Mattei.
  11. Arthur J.H.C. Schram & Sander Onderstal, 2009. "Bidding To Give: An Experimental Comparison Of Auctions For Charity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 431-457, 05.
  12. Jacob K. Goeree & Emiel Maasland & Sander Onderstal & John L. Turner, 2005. "How (Not) to Raise Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(4), pages 897-926, August.
  13. Edlin Aaron S., 2005. "The Choose-your-Charity Tax: A Way to Incentivize Greater Giving," The Economists' Voice, De Gruyter, De Gruyter, vol. 2(3), pages 1-6, August.
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Cited by:
  1. Fu, Qiang & Lu, Jingfeng, 2013. "Competitive effect of cross-shareholdings in all-pay auctions with complete information," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 31(3), pages 267-277.
  2. Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2010. "Endogenous participation in charity auctions," Journal of Public Economics, Elsevier, Elsevier, vol. 94(11-12), pages 921-935, December.
  3. Bos, Olivier, 2011. "How lotteries outperform auctions," Economics Letters, Elsevier, Elsevier, vol. 110(3), pages 262-264, March.
  4. Gregor, Martin, 2012. "Contest for power in organizations," Economics Letters, Elsevier, Elsevier, vol. 114(3), pages 280-283.

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