Template-type: ReDif-Paper 1.0
Author-Name: Damianov Damian S. 
Author-Name: Peeters Ronald 
Author-workplace-name: METEOR
Title: The lowest-bid all-pay-auction as a fund-raising mechanism: Theoretically optimal but behaviorally fragile
Abstract: We study the optimal design of mechanisms for the private provision of public goods in a simplesetting in which donors compete for a prize of commonly known value. The optimal mechanism in thismodel is the lowest-price all-pay auction – a mechanism in which the highest bidder wins but allbidders pay the lowest bid. The highest amount for the public good is generated in the unique,symmetric, mixed-strategy equilibrium of this mechanism. We derive the equilibrium distributionfunction in a closed form for any number of bidders. We then compare various all-pay auctions andlotteries in lieu of voluntary contributions with a battery of laboratory experiments. Theperformance of the optimal mechanism depends on the level of competition. The lowest-price all-payauction dominates the remaining auction formats with three competing bidders, but is inferior tothe own-pay auction and the lottery with only two bidders.
Keywords: public economics ; 
Series: Research Memoranda
Creation-Date: 2012
Number: 051
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:e1bc3b7e-9396-4e15-81c2-0cd08fda07ef/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 408437
Handle: RePEc:unm:umamet:2012051