TY - JOUR

T1 - All-pay auctions versus lotteries as provisional fixed-prize fundraising mechanisms

T2 - Theory and evidence

AU - Duffy, J.

AU - Matros, A.

PY - 2021/12/31

Y1 - 2021/12/31

N2 - We compare two fixed-prize mechanisms for funding public goods, an all-pay auction and a lottery, where public good provision can only occur if the participants’ contributions equal or exceed the fixed-prize value. We show that the provisional nature of the fixed-prize means that efficiency and endowment conditions must both be satisfied to assure positive public good provision. Our main finding is that provisional fixed-prize lotteries can outperform provisional fixed-prize all-pay auctions in terms of public good provision when endowments are large relative to prize values. 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 significantly higher than predicted and there is no significant difference in the level of public good provision under either provisional, fixed-prize mechanism. We consider several different modifications to our framework that might help to explain these departures from theoretical predictions.

AB - We compare two fixed-prize mechanisms for funding public goods, an all-pay auction and a lottery, where public good provision can only occur if the participants’ contributions equal or exceed the fixed-prize value. We show that the provisional nature of the fixed-prize means that efficiency and endowment conditions must both be satisfied to assure positive public good provision. Our main finding is that provisional fixed-prize lotteries can outperform provisional fixed-prize all-pay auctions in terms of public good provision when endowments are large relative to prize values. 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 significantly higher than predicted and there is no significant difference in the level of public good provision under either provisional, fixed-prize mechanism. We consider several different modifications to our framework that might help to explain these departures from theoretical predictions.

KW - All-pay auction

KW - experiment

KW - Fixed-prize mechanisms

KW - Fundraising

KW - Lottery

KW - Public goods

U2 - 10.1016/j.jebo.2021.10.010

DO - 10.1016/j.jebo.2021.10.010

M3 - Journal article

VL - 192

SP - 434

EP - 464

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

ER -