, Volume 13, Issue 1, pp 14-44

Do preferences for charitable giving help auctioneers?

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Abstract

Preferences for charitable giving in auctions can be modeled by assuming that bidders receive additional utility proportional to the revenue raised by an auctioneer. The theory of bidding in the presence of such preferences results in a very counterintuitive prediction which is that, in many cases, bidders having preferences for charitable giving does not lead to a substantial revenue advantage for an auctioneer. We test this theory and this prediction with a series of experiments. In one experiment we induce charitable preferences exactly as specified in the model to see if bidders respond to them as predicted. We find that they do. We then conduct a second experiment in which the revenue from the auctions is donated to actual charities to verify the robustness of the prediction when charitable preferences are generated by a more natural source and find again that the theoretical prediction holds: even strong charitable preferences do not result in substantial revenue increases to the auctioneer.

The authors would like to thank participants of the Rome ESA International meeting, Econometric Society Summer 2008 meeting and Michael H. Rothkopf Memorial Conference for helpful comments. This study was funded in part by a grant from the National Science Foundation, grant #0451970.