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The Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods with Contests

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  • Marco Faravelli

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Abstract

This paper considers a public good game with heterogeneous endowments and incomplete information affected by extreme free-riding. We overcome this problem through the implementation of a contest in which several prizes may be awarded. We identify a monotone equilibrium, in which the contribution is strictly increasing in the endowment. We prove that it is optimal for the social planner to set the last prize equal to zero, but otherwise total expected contribution is invariant to the prize structure. Finally, we show that private provision via a contest Pareto-dominates public provision and is higher than the total contribution raised through a lottery.

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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 156.

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Length: 19
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:edn:esedps:156

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  1. Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 542-558, June.
  3. Luca Corazzini & Marco Faravelli & Luca Stanca, 2010. "A Prize To Give For: An Experiment on Public Good Funding Mechanisms," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 120(547), pages 944-967, 09.
  4. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers, Pennsylvania State - Department of Economics 9-92-2, Pennsylvania State - Department of Economics.
  5. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, Econometric Society, vol. 58(2), pages 429-52, March.
  6. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, Elsevier, vol. 35(1), pages 57-73, February.
  7. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  8. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, Springer, vol. 54(1), pages 63-82, January.
  9. 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.
  10. Theodore Groves & John Ledyard, 1976. "Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem'," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Ellingsen, T., 1990. "Strategic Buyers and the Social Cost of Monopoly," Papers, Norwegian School of Economics and Business Administration- 05-90, Norwegian School of Economics and Business Administration-.
  12. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  13. Henrik Orzen, 2008. "Fundraising through Competition: Evidence from the Lab," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2008-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  14. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(3), pages 573-605, June.
  15. 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.
  16. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, Elsevier, vol. 29(1), pages 25-49, February.
  17. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 85(4), pages 872-90, September.
  18. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
  19. Morgan, John & Sefton, Martin, 2000. "Funding Public Goods with Lotteries: Experimental Evidence," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(4), pages 785-810, October.
  20. Morgan, John, 2000. "Financing Public Goods by Means of Lotteries," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(4), pages 761-84, October.
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Cited by:
  1. Henrik Orzen, 2005. "Fundraising through Competition: Evidence from the Lab," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2005-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Onderstal, Sander & Schram, Arthur J.H.C. & Soetevent, Adriaan R., 2013. "Bidding to give in the field," Journal of Public Economics, Elsevier, Elsevier, vol. 105(C), pages 72-85.
  3. Sander Onderstal & Arthur J.C. Schram & Adriaan R. Soetevent, 2011. "Bidding to give in the Field: Door-to-Door Fundraisers had it right from the Start," Tinbergen Institute Discussion Papers 11-070/1, Tinbergen Institute, revised 10 Nov 2011.
  4. Luca Corazzini & Marco Faravelli & Luca Stanca, 2007. "A Prize to Give for: An Experiment on Public Good Funding Mechanisms," CRIEFF Discussion Papers 0714, Centre for Research into Industry, Enterprise, Finance and the Firm.
  5. Marco Faravelli & Luca Stanca, 2007. "Single versus Multiple Prize Contests to Finance Public Goods: Theory and Experimental Evidence," Working Papers, University of Milano-Bicocca, Department of Economics 127, University of Milano-Bicocca, Department of Economics, revised Nov 2007.
  6. Jörg Franke & Wolfgang Leininger, 2013. "On the Efficient Provision of Public Goods by Means of Lotteries," CESifo Working Paper Series 4109, CESifo Group Munich.
  7. Sander Onderstal & Arthur J.C. Schram & Adriaan R. Soetevent, 2011. "Bidding to give in the Field: Door-to-Door Fundraisers had it right from the Start," Tinbergen Institute Discussion Papers 11-070/1, Tinbergen Institute, revised 10 Nov 2011.
  8. Gregor, Martin, 2012. "Contest for power in organizations," Economics Letters, Elsevier, Elsevier, vol. 114(3), pages 280-283.
  9. Fujiwara, Hikojiro & Arai, Kazuhiro, 2008. "Group Competition and Personality in an Experimental Public Goods Game," Hitotsubashi Journal of Economics, Hitotsubashi University, Hitotsubashi University, vol. 49(2), pages 149-161, December.
  10. Faravelli, Marco & Stanca, Luca, 2012. "Single versus multiple-prize all-pay auctions to finance public goods: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 677-688.
  11. Onderstal, Sander & Schram, Arthur J.H.C. & Soetevent, Adriaan R., 2014. "Reprint of: Bidding to give in the field," Journal of Public Economics, Elsevier, Elsevier, vol. 114(C), pages 87-100.

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