The Geography of Crowdfunding

63 Pages Posted: 28 Feb 2011  

Ajay Agrawal

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Christian Catalini

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Avi Goldfarb

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 2011

Abstract

Perhaps the most striking feature of "crowdfunding" is the broad geographic dispersion of investors in small, early-stage projects. This contrasts with existing theories that predict entrepreneurs and investors will be co-located due to distance-sensitive costs. We examine a crowdfunding setting that connects artist-entrepreneurs with investors over the internet for financing musical projects. The average distance between artists and investors is about 3,000 miles, suggesting a reduced role for spatial proximity. Still, distance does play a role. Within a single round of financing, local investors invest relatively early, and they appear less responsive to decisions by other investors. We show this geography effect is driven by investors who likely have a personal connection with the artist-entrepreneur ("family and friends"). Although the online platform seems to eliminate most distance-related economic frictions such as monitoring progress, providing input, and gathering information, it does not eliminate social-related frictions.

Suggested Citation

Agrawal, Ajay and Catalini, Christian and Goldfarb, Avi, The Geography of Crowdfunding (February 2011). NBER Working Paper No. w16820. Available at SSRN: https://ssrn.com/abstract=1770375

Ajay Agrawal (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Christian Catalini

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Cambridge, MA MA 02142
United States

HOME PAGE: http://mitsloan.mit.edu/faculty-and-research/faculty-directory/detail/?id=58777

Avi Goldfarb

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8604 (Phone)
416-978-5433 (Fax)

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