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

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  • Andreas Lange
  • John List
  • Michael Price

Abstract

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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  • Andreas Lange & John List & Michael Price, 2007. "A fundraising mechanism inspired by historical tontines: Theory and experimental evidence," Natural Field Experiments 00478, The Field Experiments Website.
  • Handle: RePEc:feb:natura:00478
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    Cited by:

    1. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, vol. 62(11), pages 3138-3160, November.
    2. de Oliveira, Angela C.M. & Croson, Rachel T.A. & Eckel, Catherine, 2011. "The giving type: Identifying donors," Journal of Public Economics, Elsevier, vol. 95(5), pages 428-435.
    3. Lenka Fiala & Charles N. Noussair, 2017. "Charitable Giving, Emotions, And The Default Effect," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1792-1812, October.
    4. Hideki Konishi & Kozo Ueda, 2013. "Aging and Deflation from a Fiscal Perspective," IMES Discussion Paper Series 13-E-13, Institute for Monetary and Economic Studies, Bank of Japan.

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