Lottery Mechanism Research Articles

Efficient public good provision by lotteries with nonlinear pricing

In this paper, we introduce nonlinear pricing of lottery tickets to the mechanism of Morgan (2000), in which a lottery is used to finance the public good. In a model with n symmetric agents, we find that incorporating this instrument fully achieves the efficient provision of public good when each agent’s initial wealth is sufficiently high. In a model with two asymmetric agents, there exists a nonlinear lottery mechanism that induces efficient public good provision provided that agents are not too heterogenous. Intuitively, the proposed nonlinear pricing rule leads to a decreasing marginal cost for ticket purchase, which provides stronger incentives for agents to make contributions, compared with Morgan (2000).

An examination of the effect of inequality on lotteries for funding public goods

AbstractWe experimentally study the impact of inequality on the effectiveness of contests for funding public goods in a development context. We observe that the typical result of a lottery funding mechanism leading to greater funding for the public good than predicted by theory extends to groups with inequality. However, while theory suggests that increased inequality should lower total contributions to a lottery funded public good, we observe the opposite pattern. This result differs from prior results for the standard voluntary contribution mechanism where increased inequality has been found to reduce public good provision. Moreover, we find that the poor do not contribute a greater share of their endowment to the public good than do the wealthy. Thus, overall our study demonstrates the potential for community development projects, when funded with a lottery mechanism, to be highly successful even in the presence of inequality and may facilitate a progressive redistribution of wealth.

Random grant allocation from the researchers’ perspective: Introducing the distinction into legitimate and illegitimate problems in Bourdieu’s field theory

Discussions about funding research grants by lottery have centered on weighing the pros and cons of peer review, but this focus does not fully account for how an idea comes across in the field of science to those researchers directly dependent on research funding. Not only do researchers have personal perspectives, but they are also shaped by their experiences and the positions they occupy in the field of science. Applying Bourdieu’s field theory, the authors explore the question of which field-specific problems and conflicts scientists identify and for which they could imagine using a grant lottery in the allocation of research funding. Under what conditions does such a solution, which is external to the field of science, seem justified to them? The results show that different areas of application are conceivable for a lottery mechanism in the field of science but that its use seems justifiable only for legitimate field-specific quandaries.

All-pay auctions versus lotteries as provisional fixed-prize fundraising mechanisms: Theory and evidence

We compare two fixed-prize mechanisms for funding public goods, an all-pay auction and a lottery, where public good provision can only occur if the participants’ contributions equal or exceed the fixed-prize value. We show that the provisional nature of the fixed-prize means that efficiency and endowment conditions must both be satisfied to assure positive public good provision. Our main finding is that provisional fixed-prize lotteries can outperform provisional fixed-prize all-pay auctions in terms of public good provision when endowments are large relative to prize values. We test these predictions in a laboratory experiment where we vary the number of participants, the marginal per capita return (mpcr) on the public good, and the mechanism for awarding the prize, either a lottery or an all-pay auction. Consistent with the theory, we find that the mpcr matters for contribution amounts under the lottery mechanism. However, inconsistent with the theory, bids are significantly higher than predicted and there is no significant difference in the level of public good provision under either provisional, fixed-prize mechanism. We consider several different modifications to our framework that might help to explain these departures from theoretical predictions.

Public good provision with participation costs

AbstractEsteban and Ray develop a model with an increasing marginal cost of contribution, and overturn the Olson hypothesis that large groups cannot provide themselves with a rival public good. In contrast, Pecorino and Temimi incorporate fixed but avoidable participation costs into this framework, and conclude that public good provision must fall to zero in large groups if the degree of rivalry is high. However, they argue that the public good will continue to be provided in large groups when the degree of rivalry is sufficiently low. We show that this latter conclusion is incorrect. Specifically, suppose that there is rivalry “in the limit,” so, as group size grows, the per‐person benefit from any fixed total level of contribution falls to zero. Then, as group size grows, the payoff an individual receives from a public good, both when she contributes to it and when she does not, can each grow without bound in the absence of participation costs. However, the difference between these payoffs necessarily goes to zero. Thus, in a sufficiently large group, agents will not be willing to incur the participation costs. The same result also applies to the Morgan lottery mechanism.

Mekanisme ‘gacha’ dan ‘parasocial interaction’ pemain gim seluler

This article elaborates how parasocial interaction in freemium mobile game may motivate users to spend money for Gacha, an in-game virtual lottery mechanism in which users will randomly get one or several in-game items with different levels of rarity. The literature review method was used for this article which began with thorough explanations of the main concepts, such as freemium seluler game, microtransactions, Gacha mechanism, and parasocial interaction. This article concludes that seluler game developers creatively designed the game characters to be well-liked by the players through characterization and visual aspects that aesthetically pleasing in hope that gamers may experience parasocial interaction and relationship with one of the characters, which may turn into character attachment. The interaction and attachment will then encourage the players to keep spending money through microtransactions to get the characters or virtual cosmetic items they want through Gacha.

Motives behind community participation: Evidence from natural and artefactual field experiments in Sri Lanka

AbstractWe tested four alternative hypotheses concerning the motivations behind the participation by rural households in community work: public goods investment, production network formation, risk‐sharing network formation, and pure altruism. We used a unique dataset from an irrigation project in Sri Lanka under a natural experimental situation where a significant portion of irrigated land was allocated through a lottery mechanism. In addition, we elicited the level of altruism using the dictator game. By combining these data, we showed that community participation patterns fit the motive to form risk‐sharing networks better than the other major motives. Only a few studies have empirically investigated the process of risk‐sharing network formation, and our analysis fills the gap in the literature.

Understanding and strengthening the role of catastrophe lottery in catastrophe risk transfer system

AbstractAgainst the background of global climate change and rapid urbanization, all kinds of catastrophic events occur, which challenge regional socio‐economic and sustainable development. This Forum contribution introduces the tools and systems of catastrophe risk transfer and its characteristics in practice. The case is then made that the catastrophe risk transfer system needs to be innovated. It is found that the current catastrophe risk transfer system in China cannot on its own meet the needs of catastrophe risk transfer. This contribution argues that a lottery mechanism is one important means for catastrophe risk transfer. Its basic function is risk transfer and thereby raises funds for disaster recovery and reconstruction. Finally, this contribution suggests ways in which to normalize the independent issuance of catastrophe lottery, to strengthen the relevant research work for catastrophe lottery and to explore the catastrophe risk transfer mode of the combination of catastrophe lottery and disaster insurance.

Prediction and assessment of demand response potential with coupon incentives in highly renewable power systems

Demand Response (DR) provides both operational and financial benefits to a variety of stakeholders in the power system. For example, in the deregulated market operated by the Electric Reliability Council of Texas (ERCOT), load serving entities (LSEs) usually purchase electricity from the wholesale market (either in day-ahead or real-time market) and sign fixed retail price contracts with their end-consumers. Therefore, incentivizing end-consumers’ load shift from peak to off-peak hours could benefit the LSE in terms of reducing its purchase of electricity under high prices from the real-time market. As the first-of-its-kind implementation of Coupon Incentive-based Demand Response (CIDR), the EnergyCoupon project provides end-consumers with dynamic time-of-use DR event announcements, individualized load reduction targets with EnergyCoupons as the incentive for meeting these targets, as well as periodic lotteries using these coupons as lottery tickets for winning dollar-value gifts. A number of methodologies are developed for this special type of DR program including price/baseline prediction, individualized target setting and a lottery mechanism. This paper summarizes the methodologies, design, critical findings, as well as the potential generalization of such an experiment. Comparison of the EnergyCoupon with a conventional Time-of-Use (TOU) price-based DR program is also conducted. Experimental results in the year 2017 show that by combining dynamic coupon offers with periodic lotteries, the effective cost for demand response providers in EnergyCoupon can be substantially reduced, while achieving a similar level of demand reduction as conventional DR programs.

Public Good Provision with Participation Costs

Esteban and Ray (2001) develop a model with an increasing marginal cost of contribution and overturn the Olson hypothesis that large groups are unable to provide themselves with a rival public good. Pecorino and Temimi (2008) consider fixed, but avoidable, participation costs in this framework. They conclude that public good provision must fall to zero in a large group if the degree of rivalry is sufficiently high, because the individual payoff goes to zero at the interior equilibrium. Thus, individuals prefer a corner solution of zero contributions to incurring the fixed participation cost. However, when the degree of rivalry is sufficiently low, they conclude that provision of the public good will rise without bound. We show that this latter conclusion is incorrect, and that any degree of rivalry will lead to a total breakdown in public good provision in a sufficiently large group. Not including the fixed participation cost, the difference in the payoff to an individual when she contributes to the public good and when she does not contribute goes to zero in a large group. Thus, in a sufficiently large group, she will not be willing to incur the participation costs. The same result also applies to the Morgan (2000) lottery mechanism.

From nest site lottery to host lottery: continuous model of growth suppression driven by the availability of nest sites for newborns or hosts for parasites and its impact on the selection of life history strategies.

The idea that selection works in different ways during free population growth and at the equilibrium population size has been present in theoretical biology for a long time. It was first expressed as an r and K selection concept and later clarified in the debate on fitness measures in life history theory. The latest discussion related to this topic is focused on the nest site lottery mechanism and the resulting new population growth model. In this mechanistic biphasic model, the suppression of growth is induced by a shortage of free nest sites for newborns. Before it occurs, the population can grow exponentially. In this paper, the continuous version of the model and its selective properties are analysed. We show a continuous smooth transition between different fitness measures operating during the exponential growth and suppressed growth phase and at the equilibrium population size. Then, the model is extended to the case of a population of parasites, where a constant number of nest sites is replaced by the dynamics of a population of their hosts, in the role of the limiting supply. Parasite strategies are selected under exponential and suppressed growth phases of the population of hosts. Transitions between different fitness measures and conditions for extinction of hosts by parasites are analysed. An interesting result is the possibility of a continuum of fitness measures of parasites for the unsuppressed exponential growth of the host population.

Performance Bonuses and Effort: Evidence from Fight Night Awards in Mixed Martial Arts

This paper investigates the role of fight night bonus awards on fighter behavior in the Ultimate Fighting Championship (UFC) and World Extreme Cage (WEC) fighting mixed martial arts (MMA) promotions. Behavior is analyzed using detailed fighter performance statistics, exploiting variation in bonus size across events and over time. Findings suggest that fighters are not meaningfully influenced by bonus levels within the range observed in the sample period and possible explanations are discussed. Fight night bonuses appear to serve as a lottery compensation mechanism to ex post reward performances consistent with an MMA promotion’s desires rather than ex ante incentivize such performances. Findings have implications for strategic MMA promoter decisions and contribute more broadly to the personnel economics literature on incentives and compensation.

Random interactions in the Chamber: Legislators' behavior and political distance

I investigate the role of social interaction among Members of Parliament (MPs) and the impact of such interaction on the political distance between parties. Using the random allocation of seats in the Icelandic Parliament, I find that MP's voting and speech behaviors are affected by the behavior of legislators seated nearby. I also show that greater (random) exposure to MPs from different parties ultimately reduces the political distance between parties. Similar evidence is found using historical data for the U.S. House of Representatives, by exploiting the introduction of a lottery mechanism to determine desk assignments in 1845. I argue that random seating arrangements could constitute a low-cost way of reducing differences within the political arena.

Stochastic asymmetric Blotto games: An experimental study

We consider a model where two players compete for n items having different common values in a Blotto game. Players must decide how to allocate their common budgets across all n items. The winner of each item is determined stochastically using a lottery mechanism which yields a unique equilibrium in pure strategies. We analyze behavior under two competing payoff objectives found in the Blotto games literature that have not been previously compared: (i) players aim to maximize their total expected payoff and (ii) players maximize the probability of winning a majority value of all n items. We report results from an experiment where subjects face both payoff objectives and we find support for the differing theoretical predictions.

Competitive mechanisms change with ontogeny in coral-dwelling gobies.

Recent theory suggests that a mix of lottery and niche processes can facilitate coexistence between competing species, but this has not yet been empirically tested. Previous research has suggested that a competitive lottery for space promotes coexistence between two ecologically similar species, Gobiodon histrio and Gobiodon erythrospilus. However, not all the assumptions of lottery competition have been tested, and patterns of habitat use by adults suggest niche partitioning. Here, we investigated the hypothesis that the mechanism of competition changes with ontogeny, with a lottery for space operating at settlement and niche partitioning occurring in adults. Patterns of resource use in the field were compared for juveniles and adults of the two species. Pelagic larval duration (PLD) and size-at-settlement was also estimated to determine if size differences at settlement could affect the outcome of competitive interactions among juveniles. Habitat preference and size-based competitive ability were then tested for juveniles and adults in laboratory experiments. Finally, a transplant experiment was performed to test the fitness-associated consequences of niche partitioning among adults and its implications for coexistence of the two species. G. histrio had a similar PLD (20.7 ± 2.0 days) to G. erythrospilus (18.5 ± 1.9 days), and there was no difference in size-at-settlement between the species. Juveniles of the two species had similar patterns of habitat use and similar competitive abilities, supporting the lottery mechanism at settlement. However, adults differ in their habitat use, supporting the prediction that resource partitioning increases with ontogeny. In laboratory experiments, adults of each species preferred colonies of Acropora nasuta. However, G. histrio was a superior competitor and prevented G. erythrospilus from using A. nasuta in > 70% of the trials. In the field transplant experiment, G. erythrospilus (inferior competitor) suffered less of a fitness loss when occupying the non-preferred coral (A. spathulata) compared with G. histrio, which could explain its ability to persist when displaced by the superior competitor. These results suggest that the competitive mechanism operating between the two Gobiodon species shifts from a lottery for space to niche partitioning through ontogeny, and that these two mechanisms of competitive coexistence are not mutually exclusive.

A Tale of Fire-Sales and Liquidity Hoarding

We extend the analysis of the interbank market model of Gale and Yorulmazer (2013) by introducing randomized trading (lotteries). In contrast to Gale and Yorulmazer, we find that fire-sale asset prices are efficient and that no liquidity hoarding occurs in equilibrium. While Gale and Yorulmazer find that the market provides insufficient liquidity, we find that it provides too much liquidity. We also show how to decentralize the efficient lottery mechanism.

Investor participation and underpricing in lottery-allocated Chinese IPOs

We examine the association between IPO underpricing and investor participation using a unique sample of 411 Chinese IPOs where the offer price is not influenced by the issuers and underwriters, and allocation to subscribers is by a lottery mechanism. We find that investor participation does not increase with the profitability or liquidity of new issues contrary to the rational participation and liquidity hypotheses. However, consistent with the price bubbles hypothesis, we find robust evidence that initial returns and investor participation are positively related and that initial returns are inversely related with the three-year risk-adjusted abnormal return following IPOs. The implication is that excess demand inflated initial trading prices and exacerbated the Chinese “underpricing” phenomenon during our 1996–2000 sample period.

The nest site lottery: How selectively neutral density dependent growth suppression induces frequency dependent selection

Modern developments in population dynamics emphasize the role of the turnover of individuals. In the new approaches stable population size is a dynamic equilibrium between different mortality and fecundity factors instead of an arbitrary fixed carrying capacity. The latest replicator dynamics models assume that regulation of the population size acts through feedback driven by density dependent juvenile mortality. Here, we consider a simplified model to extract the properties of this approach. We show that at the stable population size, the structure of the frequency dependent evolutionary game emerges. Turnover of individuals induces a lottery mechanism where for each nest site released by a dead adult individual a single newborn is drawn from the pool of newborn candidates. This frequency dependent selection leads towards the strategy maximizing the number of newborns per adult death. However, multiple strategies can maximize this value. Among them, the strategy with the greatest mortality (which implies the greatest instantaneous growth rate) is selected. This result is important for the discussion about universal fitness measures and which parameters are maximized by natural selection. This is related to the fitness measures R0 and r, because the number of newborns per single dead individual equals the lifetime production of newborn R0 in models without aging. We thus have a two-stage procedure, instead of a single fitness measure, which is a combination of R0 and r. According to the nest site lottery mechanism, at stable population size, selection favors strategies with the greatest r, i.e. those with the highest turnover, from those with the greatest R0.

Aryabhata remainder theorem‐based non‐iterative electronic lottery mechanism with robustness

The lottery game has been around for centuries and gained the attention of thousands of individuals because of the chance of making a big fortune. It is often launched by a national institute or a legitimate organisation for gathering funds or raising charity monies. In this study, the authors aim to design a new, electronic lottery (e-lottery) system based on Aryabhata remainder theorem, which can help realise e-lottery games. In particular, the new mechanism can guarantee the security of this popular game involving the potential for a lot of money.

Increasing Private Provision of Public Goods Through a Lottery Policy: An Application to Sales Tax Evasion

The aim of this work is to explain the success registered by a zero-cost policy against sales tax evasion based on a lottery mechanism which has been recently implemented in a growing number of countries. It is suggested how the specific sales tax evasion situation in which this policy has been applied could be traced back to a general public goods framework. After a discussion of the empirical evidences showing the policy success, we propose a theoretical model incorporating Tversky and Kahneman’s (1992) Cumulative Prospect Theory insights. Furthermore, a test for verifying the applicability of the lottery ticket policy in specific contexts is developed. Such a test could represent a useful ex-ante indicator of the expected success of the lottery ticket policy for policymakers interested in increasing the private provision of public goods.