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Charity auctions as assets: Theory and simulations of fundraising risk management in mean-variance space

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  • Foster, Joshua
  • Haley, M. Ryan

Abstract

This paper demonstrates how the risk over auction revenue at fundraising events can be managed with modern portfolio theory. Within the independent private values (IPV) framework, it is shown that auction mechanisms offer charities an inherent mean-variance tradeoff over revenue when contributions produce a public good benefit among bidders. This allows the fundraiser to construct a “portfolio” of auction mechanisms for their event so as to manage auction revenue outcomes according to the charity's risk preferences. Simulations provide support for the empirical prominence of the second-price winner-pay (i.e. English) auction, as this is often the portfolio's most heavily weighted mechanism under reasonable risk preferences.

Suggested Citation

  • Foster, Joshua & Haley, M. Ryan, 2022. "Charity auctions as assets: Theory and simulations of fundraising risk management in mean-variance space," Socio-Economic Planning Sciences, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:soceps:v:83:y:2022:i:c:s0038012122001045
    DOI: 10.1016/j.seps.2022.101319
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; Charitable giving; Mean-variance relation; Risk-return tradeoff;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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