Prize-Based Mechanisms for Fund-Raising: Theory and Experiments

Damianov, D.S.; Peeters, R.

doi:10.1111/ecin.12570

Prize-Based Mechanisms for Fund-Raising: Theory and Experiments

Damianov, D.S.; Peeters, R.

Authors

Professor Damian Damianov damian.damianov@durham.ac.uk
Professor

R. Peeters

Abstract

We study the optimal design of mechanisms for the private provision of public goods in a setting in which donors compete for a prize of commonly known value. We discuss equilibrium bidding in mechanisms that promote both conditional cooperation and competition (i.e., the lottery and the all-pay auction with the lowest-bid payment rule) and rank their fund-raising performance vis-à-vis their standard (pay-your-own-bid) counterparts. The theoretically optimal mechanism in this model is the lowest-price all-pay auction—an auction in which the highest bidder wins the prize and all bidders pay the lowest bid. The highest amount for the public good is generated in the unique, symmetric, mixed-strategy equilibrium of this auction. In the laboratory, the theoretically optimal mechanism generates the highest level of donations with three bidders but not with two bidders. (JEL D44, D64)

Citation

Damianov, D., & Peeters, R. (2018). Prize-Based Mechanisms for Fund-Raising: Theory and Experiments. Economic Inquiry, 56(3), 1562-1584. https://doi.org/10.1111/ecin.12570

Journal Article Type	Article
Acceptance Date	Jan 20, 2018
Online Publication Date	Mar 9, 2018
Publication Date	Jul 1, 2018
Deposit Date	Jan 26, 2018
Publicly Available Date	Mar 9, 2019
Journal	Economic Inquiry
Print ISSN	0095-2583
Electronic ISSN	1465-7295
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	56
Issue	3
Pages	1562-1584
DOI	https://doi.org/10.1111/ecin.12570
Public URL	https://durham-repository.worktribe.com/output/1340641

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Copyright Statement
This is the accepted version of the following article: Damianov, D.S. & Peeters, R. (2018). Prize-Based Mechanisms for Fund-Raising: Theory and Experiments. Economic Inquiry, 56(3): 1562-1584, which has been published in final form at https://doi.org/10.1111/ecin.12570. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.