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CRIEFF Discussion Paper Number 0714

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

Luca Corazzini (University of East Anglia), Marco Faravelli (University of St. Andrews), Luca Stanca (University of Milan Bicocca)

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Abstract

This paper investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare 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 after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution.

JEL codes: C91, D44, H41 

Keywords: Auctions; Lotteries; Public Goods; Laboratory Experiments

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