Charity auctions: a field experiment

Auctions are a popular way to raise money for charities, but relatively little is known, either theo-retically or empirically, about the properties of charity auctions. We conduct field experiments to see which sealed bid format, first price, second price or all-pay, raises the most money. Our experiment suggests that both the all-pay and second price formats are dominated by the first price auction. Our design also allows us to identify differential participation as the source of the difference between existing theory and the field. Few people appreciate the size of the philanthropic market, the amount of funding that flows through charities, and the time and resources devoted to fundraising activ-ities each year. For example, total giving to charitable organisations in the US in 2004 amounted to nearly $250 billion (Giving USA 2005) and, according to a survey by Forbes Magazine, 200 major charities spent over $2.5 billion on fundraising activities in 2001.1 Despite the obvious size and importance of the market for philanthropy, sur-prisingly little is known about the fund-raising mechanisms most likely to generate the greatest revenue for non-profit organisations. A variety of mechanisms are used to raise money for charities or to fund publi