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A fundraising mechanism inspired by historical tontines: Theory and experimental evidence

  • Lange, Andreas
  • List, John A.
  • Price, Michael K.

The tontine, which is an interesting mixture of group annuity, group life insurance, and lottery, has a peculiar place in economic history. In the seventeenth and eighteenth centuries it played a major role in raising funds to finance public goods in Europe, but today it is rarely encountered outside of a dusty footnote in actuarial course notes or as a means to thicken the plot of a murder mystery. This study provides a formal model of individual contribution decisions under a modern variant of the historical tontine mechanism that is easily implemented by private charities. Our model incorporates desirable properties of the historical tontine to develop a mechanism to fund the private provision of a public good. The tontine-like mechanism we derive is predicted to outperform not only the voluntary contribution mechanism but also another widely used mechanism: charitable lotteries. Our experimental test of the instrument provides some evidence of the beneficial effects associated with implementing tontine-like schemes. We find that the mechanism has particular power in cases where agents are risk-averse or in situations where substantial asymmetries characterize individual preferences for the public good.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 91 (2007)
Issue (Month): 9 (September)
Pages: 1750-1782

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Handle: RePEc:eee:pubeco:v:91:y:2007:i:9:p:1750-1782
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  18. Andreas Lange & John A. List & Michael K. Price, 2007. "Using Lotteries To Finance Public Goods: Theory And Experimental Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 901-927, 08.
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