Seeds to Succeed: Sequential Giving to Public Projects

41 Pages Posted: 27 Feb 2010

See all articles by Anat Bracha

Anat Bracha

The Hebrew University

Michael Menietti

Harvard University - Business School (HBS)

Lise Vesterlund

University of Pittsburgh - Department of Economics

Date Written: December 31, 2009

Abstract

The public phase of a capital campaign is typically launched with the announcement of a large seed donation. Andreoni (1998) argues that such a fundraising strategy may be particularly effective when funds are being raised for projects that have fixed production costs. The reason is that the introduction of fixed costs may give rise to both positive and zero provision outcomes, and absent announcements of a large seed gift, donors may get stuck in an equilibrium that fails to provide a desirable public project. Interestingly, Andreoni (1998) demonstrates that announcing seed money can help eliminate such inferior outcomes. We investigate this model experimentally to determine whether announcements of seed money eliminate the inefficiencies that may result under fixed costs and simultaneous provision. To assess the strength of the theory we examine the effect of announcements in both the presence and absence of fixed costs. Our findings are supportive of the theory for projects with sufficiently high fixed costs.

JEL Classification: H41, C92

Suggested Citation

Bracha, Anat and Menietti, Michael and Vesterlund, Lise, Seeds to Succeed: Sequential Giving to Public Projects (December 31, 2009). FRB of Boston Working Paper No. 09-21, Available at SSRN: https://ssrn.com/abstract=1559944 or http://dx.doi.org/10.2139/ssrn.1559944

Anat Bracha (Contact Author)

The Hebrew University ( email )

Israel

Michael Menietti

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Lise Vesterlund

University of Pittsburgh - Department of Economics ( email )

4T18 WW Posvar. Hall
Pittsburgh, PA 15260
United States

HOME PAGE: http://www.econ.iastate.edu/faculty/vesterlund/

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