A Prize to Give for: An Experiment on Public Good Funding Mechanisms

Abstract

This article investigates fund‐raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods. We focus on an environment characterised by income heterogeneity and incomplete information about income levels. Our analysis compares experimentally the performance of a lottery, an all‐pay auction and a benchmark voluntary contribution mechanism. We find that prize‐based mechanisms perform better than voluntary contribution in terms of public good provision. Contrary to the theoretical predictions, contributions are significantly higher in the lottery than in the all‐pay auction, both overall and by individual income types.