A Prize to Give for: An Experiment on Public Good Funding Mechanisms

Abstract

This article investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods. We focus on an environment characterised by income heterogeneity and incomplete information about income levels. Our analysis compares experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision. Contrary to the theoretical predictions, contributions are significantly higher in the lottery than in the all-pay auction, both overall and by individual income types.

Bidding to Give in the Field: Door-to-Door Fundraisers Had it Right from the Start

“…The theoretical results that the literature has shown for the mechanisms we study predict that VCM will be less successful than APA (Orzen, 2008;Corazzini et al, 2010) and LOT (Morgan, 2000;Lange et al, 2007;Orzen, 2008;Landry et al, 2006;Corazzini et al, 2010). Though this result has only been found in common value settings, it also holds true for the private values case as we will show in Section 3.…”

“…Though this result has only been found in common value settings, it also holds true for the private values case as we will show in Section 3. The average theoretical contribution in APA is higher than in LOT in the case of both private (Goeree et al, 2005;Schram and Onderstal, 2009) and common values (Orzen, 2008;Faravelli, 2011;Corazzini et al, 2010).…”

“…In laboratory experiments, LOT raises more money than VCM (Morgan and Sefton, 2000;Lange et al, 2007;Orzen, 2008;Corazzini et al, 2010;all in common value settings). APA dominates VCM in terms of revenue in the lab when values are common (Orzen, 2008;Corazzini et al, 2010).…”

Beyond the Joneses: Inter-country income comparisons and happiness

“…Such relevance has been recently confirmed by multi country experiments (Corazzini et al, 2010) were individuals face trade-offs between group ranking and absolute payoffs. These experiments document that many of them prefer being first, even at the cost of a lower income, and that such preference is associated to male gender, higher education and residence in a high income country.…”

“…Such revolution dramatically increased the opportunity of interacting with people in distant countries and of comparing one's own level of wellbeing with that of those countries 5 .…”