The Geography of Crowdfunding

63 Pages Posted: 28 Feb 2011 Last revised: 18 Jun 2023

See all articles by Ajay K. Agrawal

Ajay K. 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; Diem Association and Diem Networks US; National Bureau of Economic Research (NBER)

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 K. 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 K. Agrawal (Contact Author)

University of Toronto - Rotman School of Management ( email )

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Christian Catalini

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

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Avi Goldfarb

University of Toronto - Rotman School of Management ( email )

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