Abstract:The public phase of a capital campaign is typically launched with the announcement of a large seed donation. Andreoni (1998) argues that such a fundraising strategy may be particularly effective when funds are being raised for projects that have fixed production costs. The reason is that the introduction of fixed costs may give rise to both positive and zero provision outcomes, and absent announcements of a large seed gift, donors may get stuck in an equilibrium that fails to provide a desirable public project. Interestingly, Andreoni (1998) demonstrates that announcing seed money can help eliminate such inferior outcomes. We investigate this model experimentally to determine whether announcements of seed money eliminate the inefficiencies that may result under fixed costs and simultaneous provision. To assess the strength of the theory we examine the effect of announcements in both the presence and absence of fixed costs. Our findings are supportive of the theory for projects with sufficiently high fixed costs. JEL Classifications: H41, C92Anat Bracha is an economist with the Research Center for Behavioral Economics at the Federal Reserve Bank of Boston; her e-mail address is anat.bracha@bos.frb.org. Michael Menietti is a graduate student in economics at the University of Pittsburgh; his e-mail address is mem78@pitt.edu. Lise Vesterlund is the Andrew W. Mellon Professor of Economics at the University of Pittsburgh; her e-mail address is vester@pitt.edu. This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at http://www.bos.frb.org/economic/wp/index.htm.We thank the National Science Foundation, the University of Pittsburgh, and the Mellon Foundation for financial support. Bracha thanks the University of Pittsburgh for its hospitality. This version: December 31, 2009Research Center for Behavioral Economics 1 IntroductionA rule of thumb commonly followed by fundraisers is that past contributions are announced to future donors. This practice is perhaps most noteworthy in capital campaigns where the announcement of a substantial seed donation is used to launch the public phase of the campaign. The practice of sequential fundraising is intriguing in light of the analysis of voluntary provision of public goods provided by Varian (1994).Examining a model with continuous production of the public good, he compares the contributions that result when donations are made simultaneously versus sequentially.Recognizing that one donor's contribution is a perfect substitute for that of another, he demonstrates that sequential provision enables the initial donor to free ride off of subsequent donors, and as a result the overall provision in the sequential contribution game will be no greater than in the simultaneous one. 1This inconsistency between common fundraising practice and theoretical prediction has prompted researchers to identify conditions under which it may be optimal to raise funds sequentially. Andreoni (1998), the first to propose an explanation, showed that ...
Economic analysis of rank-order tournaments has shown that intensi ied competition leads to declining performance. Empirical research demonstrates that individuals in tournament-type contests perform less well on average in the presence of larger number of competitors in total and superstars. Particularly in ield settings, studies often lack direct evidence about the underlying mechanisms, such as the amount of effort, that might account for these results. Here we exploit a novel dataset on algorithmic programming contests that contains data on individual effort, risk taking, and cognitive errors that may underlie tournament performance outcomes. We ind that competitors on average react negatively to an increase in the total number of competitors, and react more negatively to an increase in the number of superstars than non-superstars. We also ind that the most negative reactions come from a particular subgroup of competitors: those that are highly skilled, but whose abilities put them near to the top of the ability distribution. For these competitors, we ind no evidence that the decline in performance outcomes stems from reduced effort or increased risk taking. Instead, errors in logic lead to a decline in performance, which suggests a cognitive explanation for the negative response to increased competition. We also ind that a small group of competitors, who are at the very top of the ability distribution (non-superstars), react positively to increased competition from superstars. For them, we ind some evidence of increased effort and no increase in errors of logic, consistent with both economic and psychological explanations.
The evaluation and selection of novel projects lies at the heart of scientific and technological innovation, and yet there are persistent concerns about bias, such as conservatism. This paper investigates the role that the format of evaluation, specifically information sharing among expert evaluators, plays in generating conservative decisions. We executed two field experiments in two separate grant-funding opportunities at a leading research university, mobilizing 369 evaluators from seven universities to evaluate 97 projects, resulting in 761 proposal-evaluation pairs and more than $250,000 in awards. We exogenously varied the relative valence (positive and negative) of others’ scores and measured how exposures to higher and lower scores affect the focal evaluator’s propensity to change their initial score. We found causal evidence of a negativity bias, where evaluators lower their scores by more points after seeing scores more critical than their own rather than raise them after seeing more favorable scores. Qualitative coding of the evaluators’ justifications for score changes reveals that exposures to lower scores were associated with greater attention to uncovering weaknesses, whereas exposures to neutral or higher scores were associated with increased emphasis on nonevaluation criteria, such as confidence in one’s judgment. The greater power of negative information suggests that information sharing among expert evaluators can lead to more conservative allocation decisions that favor protecting against failure rather than maximizing success. This paper was accepted by Alfonso Gambardella, business strategy.
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