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PRIZE‐BASED MECHANISMS FOR FUND‐RAISING: THEORY AND EXPERIMENTS
Author(s) -
Damianov Damian S.,
Peeters Ronald
Publication year - 2018
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12570
Subject(s) - microeconomics , bidding , economics , auction theory , vickrey–clarke–groves auction , unique bid auction , common value auction , vickrey auction , public good , lottery , competition (biology) , raising (metalworking) , value (mathematics) , bid shading , payment , mechanism design , mathematical economics , finance , computer science , mathematics , ecology , geometry , machine learning , biology
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)