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Charity Auctions for the Happy Few

  • Olivier Bos

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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  1. Olivier Bos, 2008. "Charity Auctions for the Happy Few," CESifo Working Paper Series 2398, CESifo Group Munich.
  2. Jeffrey Carpenter & Jessica Holmes & Peter Hans Matthews, 2007. "Endogenous Participation in Charity Auctions," Middlebury College Working Paper Series 0707, Middlebury College, Department of Economics.
  3. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  4. 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.
  5. Emiel Maasland & Sander Onderstal, 2003. "Auctions with Financial Externalities," Working Papers 2003.30, Fondazione Eni Enrico Mattei.
  6. 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.
  7. 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, vol. 50(2), pages 431-457, 05.
  8. 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, vol. 48(3), pages 953-994, 08.
  9. Jacob K. Goeree & Emiel Maasland & Sander Onderstal & John L. Turner, 2005. "How (Not) to Raise Money," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 897-926, August.
  10. 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, vol. 83(1), pages 289-94, March.
  11. 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, vol. 29(4), pages 663-80, November.
  12. David Ettinger, 2010. "Bidding among Friends and Enemies with Symmetric Information," Post-Print hal-00701295, HAL.
  13. Damianov Damian S. & Peeters Ronald, 2012. "The lowest-bid all-pay-auction as a fund-raising mechanism: Theoretically optimal but behaviorally fragile," Research Memorandum 051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  14. Jeffrey Carpenter & Jessica Holmes & PeterHans Matthews, 2008. "Charity auctions: a field experiment," Economic Journal, Royal Economic Society, vol. 118(525), pages 92-113, 01.
  15. Bos, Olivier, 2011. "How lotteries outperform auctions," Economics Letters, Elsevier, vol. 110(3), pages 262-264, March.
  16. Fang, Hanming, 2002. "Lottery versus All-Pay Auction Models of Lobbying," Public Choice, Springer, vol. 112(3-4), pages 351-71, September.
  17. Edlin Aaron S., 2005. "The Choose-your-Charity Tax: A Way to Incentivize Greater Giving," The Economists' Voice, De Gruyter, vol. 2(3), pages 1-6, August.
  18. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 761-784.
  19. 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, vol. 106(4), pages 828-853, August.
  20. David Ettinger, 2003. "Bidding among Friends and Enemies," Working Papers 2003.23, Fondazione Eni Enrico Mattei.
  21. repec:dau:papers:123456789/5447 is not listed on IDEAS
  22. Yeon-Koo Che & Ian Gale, 1998. "Caps on Political Lobbying," Microeconomics 9809003, EconWPA.
  23. Douglas D. Davis & Laura Razzolini & Robert Reilly & Bart J. Wilson, 2003. "Raising Revenues for Charity: Auctions versus Lotteries," Working Papers 0301, VCU School of Business, Department of Economics.
  24. R. Mark Isaac & Kurt Schnier, 2005. "Silent Auctions in the Field and in the Laboratory," Economic Inquiry, Western Economic Association International, vol. 43(4), pages 715-733, October.
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