The Middlebury College Philanthropy Research Team consists of Economics Professors Jeffrey Carpenter, Jessica Holmes, and Peter Hans Matthews. We have been awarded a grant from the National Science Foundation to identify the fundraising mechanisms that generate the most revenue for charitable organizations. Our earlier research has appeared in a number of academic journals and has been featured in the Financial Times.
Nonprofit organizations of all sizes depend on charitable donations to provide cash revenue. In 2009, this revenue amounted to $303.75 billion (Giving USA, 2010). Charities frequently employ fundraisers, namely auctions and raffles, to grow revenue and transform “in kind” donations into cash. Despite this, neither the theory nor the practice of efficient fundraising – and, in particular, charity auctions – has received sufficient attention from economists.
Additionally, charity auctions are distinct from standard for-profit auctions and thus necessitate further economic research. Many charity auctions are held to benefit causes that offer direct benefits to most of the participants whether they win a prize or not, such as raising money for local schools or cancer research. As a result, this may lead to a curious incentive-bid suppression. Individuals may hold off on making what would be a winning bid because they are happy to see their peers contribute to the shared charity.
In the previous stage of our research, we studied the revenue potential of fifteen different variations of charity auctions with over 1,500 participants in the experimental lab. While some of the mechanisms had already received attention from both theorists and empiricists, ours was the first comprehensive examination of all existing mechanisms and the first to explore the potential of a few new formats, such as the “bucket” and “hybrid” auctions.
We are now bringing our most lucrative mechanisms from the lab “to the field.” At the American Legion National Convention in Milwaukee, we are assessing the ability of five different types of auctions to raise money for charity. This research will prove invaluable for charitable organizations in their fundraising efforts.