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Charity Auctions for the Happy Few

Listed author(s):
  • 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
Handle: RePEc:ces:ceswps:_2398
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  1. David Ettinger, 2010. "Bidding among Friends and Enemies with Symmetric Information," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 365-385, June.
  2. Bos, Olivier, 2011. "How lotteries outperform auctions," Economics Letters, Elsevier, vol. 110(3), pages 262-264, March.
  3. 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.
  4. 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.
  5. Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2010. "Endogenous participation in charity auctions," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 921-935, December.
  6. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  7. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-651, June.
  8. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 761-784.
  9. 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 289-294, March.
  10. Fang, Hanming, 2002. "Lottery versus All-Pay Auction Models of Lobbying," Public Choice, Springer, vol. 112(3-4), pages 351-371, September.
  11. 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.
  12. 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.
  13. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 291-305.
  14. repec:dau:papers:123456789/5447 is not listed on IDEAS
  15. Emiel Maasland & Sander Onderstal, 2007. "Auctions with Financial Externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 551-574, September.
  16. Bos, Olivier, 2016. "Charity auctions for the happy few," Mathematical Social Sciences, Elsevier, vol. 79(C), pages 83-92.
  17. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
  18. Jeffrey Carpenter & Jessica Holmes & PeterHans Matthews, 2008. "Charity auctions: a field experiment," Economic Journal, Royal Economic Society, vol. 118(525), pages 92-113, 01.
  19. 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 663-680, November.
  20. 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.
  21. 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.
  22. 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).
  23. 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.
  24. 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.
  25. David Ettinger, 2003. "Bidding among Friends and Enemies," Working Papers 2003.23, Fondazione Eni Enrico Mattei.
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