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

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

Author Info

Marco Faravelli

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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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0802.

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Date of creation: Jan 2008
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Handle: RePEc:san:crieff:0802

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-02-23 (All new papers)
NEP-CBE-2008-02-23 (Cognitive & Behavioural Economics)
NEP-PBE-2008-02-23 (Public Economics)
NEP-PUB-2008-02-23 (Public Finance)

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Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May. [Downloadable!] (restricted)
Other versions:
- Theodore Groves & John Ledyard, 1976. "Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem'," Discussion Papers 144, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
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Henrik Orzen, 2005. "Fundraising through Competition: Evidence from the Lab," Discussion Papers 2005-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
Other versions:
- Henrik Orzen, 2008. "Fundraising through Competition: Evidence from the Lab," Discussion Papers 2008-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June. [Downloadable!] (restricted)
Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June. [Downloadable!] (restricted)
Other versions:
- Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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. [Downloadable!]
Other versions:
- Lucca Corazzini & Marco Faravelli & Lucca Stanca, 2007. "A Prize to Give for: An Experiment on Public Good Funding Mechanisms," ESE Discussion Papers 159, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February. [Downloadable!] (restricted)
Other versions:
- Ted Bergstrom & Larry Blume & Hal Varian, 1986. "On the Private Provision of Public Goods," University of California at Santa Barbara, Economics Working Paper Series 1986B, Department of Economics, UC Santa Barbara. [Downloadable!]
Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer, vol. 8(2), pages 291-305.
Other versions:
- Baye, Michael R. & Kovenock, Dan & Vries, Casper de, 1995. "The All-pay Auction with Complete Information," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
- Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Baye, M.R. & Kovenock, D. & De Vries, C., 1992. "The All-Pay Auction with Complete Information," Papers 8-92-1, Pennsylvania State - Department of Economics.
- Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "The All-Pay Auction With Complete Information," Purdue University Economics Working Papers 1007, Purdue University, Department of Economics.
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Ellingsen, Tore, 1991. "Strategic Buyers and the Social Cost of Monopoly," American Economic Review, American Economic Association, vol. 81(3), pages 648-57, June. [Downloadable!] (restricted)
Other versions:
- Ellingsen, T., 1990. "Strategic Buyers and the Social Cost of Monopoly," Papers 05-90, Norwegian School of Economics and Business Administration-.

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