A fundraising mechanism inspired by historical tontines: Theory and experimental evidence
Andreas Lange,
John List and
Michael Price
Natural Field Experiments from The Field Experiments Website
Abstract:
The tontine, which is an interesting mixture of group annuity, group life insurance, and lottery, has a peculiar place in economic history. In the seventeenth and eighteenth centuries it played a major role in raising funds to finance public goods in Europe, but today it is rarely encountered outside of a dusty footnote in actuarial course notes or as a means to thicken the plot of a murder mystery. This study provides a formal model of individual contribution decisions under a modern variant of the historical tontine mechanism that is easily implemented by private charities. Our model incorporates desirable properties of the historical tontine to develop a mechanism to fund the private provision of a public good. The tontine-like mechanism we derive is predicted to outperform not only the voluntary contribution mechanism but also another widely used mechanism: charitable lotteries. Our experimental test of the instrument provides some evidence of the beneficial effects associated with implementing tontine-like schemes. We find that the mechanism has particular power in cases where agents are risk-averse or in situations where substantial asymmetries characterize individual preferences for the public good.
Date: 2007
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Citations: View citations in EconPapers (11)
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Journal Article: A fundraising mechanism inspired by historical tontines: Theory and experimental evidence (2007) 
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Persistent link: https://EconPapers.repec.org/RePEc:feb:natura:00478
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