Authors
J.K. Goeree
E. Maasland
A.M. Onderstal
J. Turner
Date (dd-mm-yyyy)
2005
Title
How (Not) to Raise Money
Journal
Journal of Political Economy
Volume
113
Publication Year
2005
Pages
897-918
Issue number
4
Document type
Article
Faculty
Faculty of Economics and Business (FEB)
Institute
Amsterdam School of Economics Research Institute (ASE-RI)
Abstract
We show that standard winner-pay auctions are inept fund-raising mechanisms because of the positive externality bidders forgo if they top another's high bid. Revenues are suppressed as a result and remain finite even when bidders value a dollar donated the same as a dollar kept. This problem does not occur in lotteries and all-pay auctions, where bidders pay irrespective of whether they win. We introduce a general class of all-pay auctions, rank their revenues, and illustrate how they dominate lotteries and winner-pay formats. The optimal fund-raising mechanism is an all-pay auction augmented with an entry fee and reserve price.
URL
go to publisher's site
Permalink
https://hdl.handle.net/11245/1.254016