Charity auctions as assets: Theory and simulations of fundraising risk management in mean-variance space

Joshua Foster and M. Ryan Haley

Socio-Economic Planning Sciences, 2022, vol. 83, issue C

Abstract: This paper demonstrates how the risk over auction revenue at fundraising events can be managed with modern portfolio theory. Within the independent private values (IPV) framework, it is shown that auction mechanisms offer charities an inherent mean-variance tradeoff over revenue when contributions produce a public good benefit among bidders. This allows the fundraiser to construct a “portfolio” of auction mechanisms for their event so as to manage auction revenue outcomes according to the charity's risk preferences. Simulations provide support for the empirical prominence of the second-price winner-pay (i.e. English) auction, as this is often the portfolio's most heavily weighted mechanism under reasonable risk preferences.

Keywords: Auctions; Charitable giving; Mean-variance relation; Risk-return tradeoff (search for similar items in EconPapers)
JEL-codes: D44 D64 G11 G17 L31 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:83:y:2022:i:c:s0038012122001045

DOI: 10.1016/j.seps.2022.101319

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