Charity auctions from an economic perspective — literature review

One of the most common means of raising funds is the charity auction. At charity auctions, money is collected for a good cause, and the products are purchased for private consumption — the bidders may achieve both public and private gains. The charitable nature of this type of auction makes them different from standard auctions. The paper aims to present the main characteristics of this fundraising strategy as well as make a comparison with other formats of raising money for a good cause, i.a. lotteries. Furthermore, the main differences between charity and non-charity auctions will be explained. The studies do not clearly demonstrate whether the charity auction is a more effective mechanism of raising funds than the lottery. However, there is evidence that both formats outperform voluntary contributions. From the perspective of charity organizations, the most effective charity auction format seems to be the all-pay auction. The studies have also revealed that revenues at charity auctions are higher than at standard auctions.

Auctioning risk: the all-pay auction under mean-variance preferences

We analyse the all-pay auction with incomplete information and variance-averse bidders. We characterise the unique symmetric equilibrium for general distributions of valuations and any number of bidders. Variance aversion is a sufficient assumption to predict that high-valuation bidders increase their bids relative to the risk-neutral case while low types decrease their bid. Considering an asymmetric two-player environment with uniformly distributed valuations, we show that a variance-averse player always bids higher than her risk-neutral opponent with the same valuation. Utilising our analytically derived bidding functions we discuss all-pay auctions with variance-averse bidders from an auction designer’s perspective. We briefly consider possible extensions of our model, including noisy signals, type-dependent attitudes towards risk, and variance-seeking preferences.

Incentives and Careers in Academia: Theory and Empirical Analysis

We study career concerns in Italian academia. We mould our empirical analysis on the standard model of contests, formalised in the multi-unit all-pay auction. The number of posts, the number of applicants, and the relative importance of the criteria for promotion determine academics' effort and output. In Italian universities incentives operate only through promotion, and all appointment panels are drawn from strictly separated and relatively narrow scientific sectors: thus the parameters affecting payoffs can be measured quite precisely, and we take the model to a newly constructed dataset which collects the journal publications of all Italian university professors. Our identification strategy is based on a reform introduced in 1999, parts of which affected different academics differently. We find that individual researchers respond to incentives in the manner described by the theoretical model: roughly, more capable researchers respond to increases in the importance of the publications for promotion and in the competitiveness of the scientific sector by exerting more effort; less able researchers are discouraged by competition and do the opposite.

Delegating performance evaluation

We study optimal incentive contracts with multiple agents when performance is evaluated by a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal fixes a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer's potential leniency bias. The optimal effort profile can be uniquely implemented by an all‐pay auction with a cap. Our analysis has implications for various applications, such as the design of worker compensation or the allocation of research grants.

The Third Place Game

We study an elimination tournament with four contestants, each of whom has either a high value of winning (a strong player) or a low value of winning (a weak player) and these values are common knowledge. Each pairwise match is modeled as an all-pay auction. The winners of the first stage (semifinal) compete in the second stage (final) for the first prize, while the losers of the first stage compete for the third prize. We examine whether or not the game for the third prize is profitable for the designer who wishes to maximize the total effort of the players. We demonstrate that if the players are asymmetric and there are at least two strong players, then there is always a seeding of the players such that the third place game is not profitable. On the other hand, if there are at least two weak players, then there is always a seeding of the players such that the third place game is profitable.

Selection of crowdsourcing formats: simultaneous contest vs sequential contest

Purpose The online crowdsourcing has been widely applied in the practice. The purpose of this paper is to investigate the all-pay auction contest in crowdsourcing, wherein a seeker posts a task online and the solvers decide whether to participate in the contest and in what extent to spend efforts on their submissions. Design/methodology/approach The authors specifically consider two classic contest formats: simultaneous contest and sequential contest, depending on whether the solver can observe the prior solvers’ submissions before making her own effort investment decision or not. They derive both seeker’s and solver’s equilibrium decisions and payoffs under different contest formats, and show that they vary significantly according to the number and the average skill level of solvers. Findings The results show that a solver would always invest more on her submission under simultaneous contest than under sequential contest, as she cannot confirm how other solvers’ submissions would be. This subsequently intensifies the market competition and brings down a solver’s average payoff under simultaneous contest. Although the simultaneous contest gives rise to a higher expected highest quality of all submissions, it also requires the seeker to spend more search cost to identify the best submission. Therefore, when the number of solvers is high or the average skill level is low, the seeker prefers sequential contest to simultaneous contest. The results also show an analogous preference over two formats for the platform. Originality/value This paper investigates two formats of all-pay auction contest in crowdsourcing and evaluates them from the perspective of solvers, seekers and platforms, respectively. The research offers many interesting insights which do not only explain the incentive mechanisms for solvers under different contest formats, but also make meaningful contributions to the seeker’s or the platform’s adoption strategies between two alternative contest formats in crowdsourcing practice.