Charity Auctions as Assets: All-Pay vs. Winner-Pay Mechanisms in Mean-Variance Space

14 Pages Posted: 10 Jan 2020

See all articles by Joshua Foster

Joshua Foster

University of Wisconsin - Oshkosh

Michael Ryan Haley

affiliation not provided to SSRN

Date Written: November 7, 2019

Abstract

Auctions that generate public good benefits for bidders through revenue, such as those run by a charity, do not adhere to the revenue equivalence theorem. Instead, theory predicts that all-pay auctions will generate greater expected revenues than winner-pay mechanisms. However, this paper demonstrates these greater expected revenues are always accompanied by greater (and in some cases infinite) revenue variance. While a risk-neutral seller would be indifferent to this revenue variance, we show through a mean-variance portfolio approach that plausible levels of risk aversion would compel them to generally avoid all-pay auctions and instead use a combination of winner-pay designs.

Keywords: Auctions, Charitable Giving, Mean-variance relation, Risk-return tradeoff

JEL Classification: D44, D64, G11, G17

Suggested Citation

Foster, Joshua and Haley, Michael Ryan, Charity Auctions as Assets: All-Pay vs. Winner-Pay Mechanisms in Mean-Variance Space (November 7, 2019). Available at SSRN: https://ssrn.com/abstract=3507096 or http://dx.doi.org/10.2139/ssrn.3507096

Joshua Foster (Contact Author)

University of Wisconsin - Oshkosh ( email )

800 Algoma Blvd.
Oshkosh, WI 54901
United States

Michael Ryan Haley

affiliation not provided to SSRN

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
18
Abstract Views
173
PlumX Metrics