Experiments Investigating Fundraising and Charitable Contributors: Volume 11

This is the fourth volume in the series Research in Experimental Economics that is organized as a compilation of papers on the same topic. Previous collections, on Emissions Permit Trading (volume 8), Market Power (volume 9) and Field Experiments (volume 10) have been well received, and it has become evident that the organization of these volumes into topical collections serves a useful function. The topic of the current volume, Charitable Auctions and Fundraising, has been a subject of intense policy interest. In recent years private, religious and state organizations have come to rely increasingly on fund-raising activities to generate revenues. Experimental methods provide an ideal context for conducting a dialog between economists, fund-raisers and policymakers regarding the revenue and social consequences of alternative fund-raising methods. The construction of this volume is largely the same as the previous themed volumes in this series. Rather than using an open submission process, we either knew of, or solicited contributions and we provided the editorial reviews.

Traditional auction theory assumes that bidders possess values defined solely on the auctioned object. There may, however, be cases in which bidders possess preferences over the revenue achieved by the auctioneer. We present here a comprehensive framework of price-preference valuations, unifying several phenomena ranging from preference for charitable giving to shill bidding. We compare expected efficiency and revenue of first- and second-price auctions for some specific cases of key interest. We also incorporate heterogeneous bidder preferences and examine the effects of mis-specified beliefs and show that both are crucial for understanding these situations.

Motivated by both prior experimental work and by field observations, we consider the performance of two different sealed bid versions of the silent auction. These are important institutional alternatives to the more familiar ascending price silent auction. In a new series of laboratory experiments, we investigate the effects of the different institutions both on aggregate efficiency and upon aggregate revenue generation.

We report an experiment conducted to gain insight into factors that may affect revenues in English auctions and lotteries, two commonly used charity fund-raising formats. In particular, we examine how changes in the marginal per capita return (MPCR) from the public component of bidding, and how changes in the distribution of values affect the revenue properties of each format. Although we observe some predicted comparative static effects, the dominant result is that lottery revenues uniformly exceed English auction revenues. The similarity of lottery and English auction bids across sales formats appears to drive the excess lottery revenues.

Charitable lotteries represent one of today's most popular fund-raising schemes. This study begins by developing theory examining the optimal design of a charitable lottery. We show that any prize distribution is only optimal for a group of n symmetric agents with given risk preference. However, there exist multiple prize distributions that generate contributions approaching the optimal level over a range of individual risk posture. We test our theory using a battery of experimental treatments. Our results suggest that lotteries dominate the voluntary contribution mechanism (VCM) in terms of total dollars raised. Moreover, the performance of lotteries weakly depends on individual risk preference.

Using analytical and experimental methods, this paper examines the extent to which targeted self-funding lotteries described by Morgan ((2000). Review of Economic Studies, 67(234), 761–784) improve social welfare in an environment with multiple public goods. Social welfare improves relative to the Nash prediction, when a single lottery is used to support provision of any socially desirable public good. However, social welfare is maximized if the lottery funds only the most socially desirable public good. Experimental results show that a lottery can fund a less socially desirable public good, but that efficiency declines as lottery ticket purchases crowd out voluntary contributions made in the absence of lotteries.

This paper examines the impact of social comparisons on fundraising and charitable contributions. We present results from a field experiment involving contribution to a public radio station. Some callers are told of the contributions decisions of others, and other callers are given no such information. We find that providing ambitions (high) social comparison information can significantly increase contributions.

An individual should be indifferent between a rebate subsidy of rate sr and a matching subsidy of rate sm=sr/(1-sr), and the total amount received by the charity should be the same regardless of subsidy type. Recent laboratory and field experiments contradict these straightforward predictions of standard economic theory: subjects consistently make decisions that result in larger amounts going to the charity under a matching subsidy than under an equivalent rebate subsidy. This paper tests whether this result is due to rebate-aversion – a preference by donors for a match over a rebate subsidy. Consistent with theory, we find no significant preference for one or the other subsidy scheme. However, we do find that, as in previous studies, participants selecting the matching subsidy made decisions that resulted in approximately twice the donations of participants selecting the rebate subsidy donated.

Recent attempts to measure altruism toward other players or charities suffer from a potential confound: the act of giving is typically correlated with the size of the pie left on the experimenter's table. Altruistic acts could thus be more generous if subjects prefer that monies go toward other players, or charities, than be left on the table. On the other hand, revealed altruism could be lower if subjects are more altruistic toward the residual claimant than they are toward the agent to whom they are being asked to give. We demonstrate this point with simple laboratory experiments that derive from popular recent designs. We find a significant effect from the hypothesized confound, with revealed altruism dependent upon who is specified as the residual claimant.

This paper examines binding multi-round commitments (MRCs) to the group account in a repeated voluntary contributions mechanism (VCM) game. Before each five-round interval, subjects in a four-person group are given the option to commit a portion of their endowments to the group account for each of the next five rounds. Decision rounds proceed, with each subject's commitment acting as the binding minimum of his group-account allocation for each round. The opportunity to make MRCs does not increase mean allocations to the group account relative to a control treatment. However, commitments do have implications for reciprocal behavior within groups, leading to higher outcome variances across groups in the MRCs treatment.