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All-Pay Auctions vs. Lotteries as Provisional Fixed-Prize Fundraising Mechanisms

Author

Listed:
  • John Duffy
  • Alexander Matros

Abstract

We study two provisional fixed-prize mechanisms for funding public goods: an all-pay auction and a lottery. In our setting, the public good is provided only if the participants' contributions are greater than the fixed-prize value; otherwise contributions are refunded. We prove that in this provisional fixed prize setting, lotteries can outperform all-pay auctions in terms of expected public good provision. Specifically, we state conditions under which the provisional fixed prize all-pay auction mechanism generates zero public good provision, while the provisional fixed prize lottery mechanism generates positive public good provision. We test these predictions in a laboratory experiment where we vary the number of participants, the marginal per capita return (mpcr) on the public good and the mechanism for awarding the prize, either a lottery or an all-pay auction. Consistent with the theory, we find that the mpcr matters for contribution amounts under the lottery mechanism. However, inconsistent with the theory bids are always significantly higher than predicted and there is no significant difference in public good contributions under either mechanism. We suggest how a non-expected utility approach involving probability weighting can help to explain over-bidding in our experiment.

Suggested Citation

  • John Duffy & Alexander Matros, 2011. "All-Pay Auctions vs. Lotteries as Provisional Fixed-Prize Fundraising Mechanisms," Working Paper 448, Department of Economics, University of Pittsburgh, revised Jul 2013.
    • Handle: RePEc:pit:wpaper:448
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    References listed on IDEAS

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    5. Douglas D. Davis & Laura Razzolini & Robert J. Reilly & Bart J. Wilson, 2006. "Raising Revenues for Charity: Auctions Versus Lotteries," Research in Experimental Economics, in: Experiments Investigating Fundraising and Charitable Contributors, pages 47-91, Emerald Group Publishing Limited.
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    Cited by:

    1. Faravelli, Marco & Stanca, Luca, 2014. "Economic incentives and social preferences: Causal evidence of non-separability," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 273-289.
    2. Christopher Oconnor & Li Zhang & Cary Deck, 2022. "An examination of the effect of inequality on lotteries for funding public goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 733-755, August.
    3. repec:elg:eechap:15325_8 is not listed on IDEAS
    4. John Duffy & Alexander Matros, 2014. "On the Use of Fines and Lottery Prizes to Increase Voter Turnout," Economics Bulletin, AccessEcon, vol. 34(2), pages 966-975.
    5. Giebe, Thomas & Schweinzer, Paul, 2014. "Consuming your way to efficiency: Public goods provision through non-distortionary tax lotteries," European Journal of Political Economy, Elsevier, vol. 36(C), pages 1-12.
    6. John Duffy & Alexander Matros, 2012. "On the Use of Fines and Lottery Prizes to Increase Voter Turnout," Working Paper 494, Department of Economics, University of Pittsburgh, revised Oct 2013.

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    More about this item

    Keywords

    All-pay auction; lottery; public goods; fixed-prize mechanisms; fundraising; experiment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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