An Introduction to Bucket Auctions (for Charity)

A common paradox for charities is the generous in-kind donation. Donations of goods and services are welcomed because of their inherent value but even the most sophisticated organizations find themselves ill-equipped to choose the most lucrative ways to translate these donations into cash. Without much guidance raffles are commonly chosen; however, auctions are becoming more popular. So far, theory predicts that all-pay auction mechanisms will do better than winner-pay mechanisms but the empirical literature is thin and therefore less definitive. Based on behavioral intuition about why some all-pay mechanisms might raise more money than others, we devise a new mechanism which we call a "bucket" auction and show that it generates considerably more revenue than any other standard mechanism in a lab setting with induced altruistic valuations. Given its performance, this and other new mechanisms have the potential to transform this aspect of fundraising.