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Raising Revenues for Charity: Auctions versus Lotteries

Author

Listed:
  • Douglas D. Davis

    () (Department of Economics, VCU School of Business)

  • Laura Razzolini

    () (Department of Economics, VCU School of Business)

  • Robert Reilly

    () (Department of Economics, VCU School of Business)

  • Bart J. Wilson

    (Interdisciplinary Center for Economic Science, George Mason University)

Abstract

We report an experiment conducted to gain insight into factors that may affect revenues in English auctions and lotteries, two commonly used charity fund-raising formats. In particular, we examine how changes in the marginal per capita return (MPCR) from the public component of bidding, and how changes in the distribution of values affect the revenue properties of each format. Although we observe some predicted comparative static effects, the dominant result is that lottery revenues uniformly exceed English auction revenues. The similarity of lottery and English auction bids across sales formats appears to drive the excess lottery revenues.

Suggested Citation

  • 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.
  • Handle: RePEc:vcu:wpaper:0301
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    File URL: http://www.people.vcu.edu/~lrazzolini/drrw1003.pdf
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    References listed on IDEAS

    as
    1. Isaac, R. Mark & Salmon, Timothy C. & Zillante, Arthur, 2007. "A theory of jump bidding in ascending auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 62(1), pages 144-164, January.
    2. Fang, Hanming, 2002. "Lottery versus All-Pay Auction Models of Lobbying," Public Choice, Springer, vol. 112(3-4), pages 351-371, September.
    3. Douglas Davis & Robert Reilly, 1998. "Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer," Public Choice, Springer, vol. 95(1), pages 89-115, April.
    4. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, March.
    5. John Morgan, 2000. "Financing Public Goods by Means of Lotteries," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 761-784.
    6. 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, August.
    7. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1993. "The Solution to the Tullock Rent-Seeking Game when R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 10-93-9, Pennsylvania State - Department of Economics.
    8. John Morgan & Martin Sefton, 2000. "Funding Public Goods with Lotteries: Experimental Evidence," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 785-810.
    9. Baye, M.R. & Kovenock, D., 1993. "The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 9368, Tilburg - Center for Economic Research.
    10. 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.
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    Citations

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    Cited by:

    1. Sebastian J. Goerg & John P. Lightle & Dmitry Ryvkin, 2016. "Priming The Charitable Pump: An Experimental Investigation Of Two-Stage Raffles," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 508-519, January.
    2. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    3. Lange, Andreas, 2006. "Providing public goods in two steps," Economics Letters, Elsevier, vol. 91(2), pages 173-178, May.
    4. 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.
    5. Peter Hans Matthews & Jeffrey Carpenter & Jessica Holmes, 2004. "Charity Auctions: A Field Experimental Investigation," Middlebury College Working Paper Series 0417, Middlebury College, Department of Economics.
    6. Daniel W. Elfenbein & Brian McManus, 2010. "A Greater Price for a Greater Good? Evidence That Consumers Pay More for Charity-Linked Products," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 28-60, May.
    7. Bos, Olivier, 2016. "Charity auctions for the happy few," Mathematical Social Sciences, Elsevier, vol. 79(C), pages 83-92.
    8. 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.
    9. Rob Moir, 2004. "Lotteries as a funding tool for financing public goods," CEEL Working Papers 0401, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    10. repec:pit:wpaper:448 is not listed on IDEAS
    11. Mark Isaac & Svetlana Pevnitskaya & Tim C. Salmon, 2008. "Individual Behavior In Auctions with Price Proportional Benefits," Working Papers wp2008_07_01, Department of Economics, Florida State University.
    12. R. Isaac & Svetlana Pevnitskaya & Timothy Salmon, 2010. "Do preferences for charitable giving help auctioneers?," Experimental Economics, Springer;Economic Science Association, vol. 13(1), pages 14-44, March.

    More about this item

    Keywords

    auctions; lotteries; charitable giving; experimental tests;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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