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USING LOTTERIES TO FINANCE PUBLIC GOODS: THEORY AND EXPERIMENTAL EVIDENCE *
Author(s) -
Lange Andreas,
List John A.,
Price Michael K.
Publication year - 2007
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2007.00449.x
Subject(s) - lottery , neutrality , economics , public good , preference , prospect theory , microeconomics , raising (metalworking) , mechanism (biology) , financial economics , public economics , political science , law , philosophy , geometry , mathematics , epistemology
This study explores the economics of charitable fund‐raising. We begin by developing theory that examines the optimal lottery design while explicitly relaxing both risk‐neutrality and preference homogeneity assumptions. We test our theory using a battery of experimental treatments and find that our theoretical predictions are largely confirmed. Specifically, we find that single‐ and multiple‐prize lotteries dominate the voluntary contribution mechanism both in total dollars raised and the number of contributors attracted. Moreover, we find that the optimal fund‐raising mechanism depends critically on the risk postures of potential contributors and preference heterogeneity.