An Analysis of Incentive Structures in Collaborative Economy: An Application to Crowdfunding Platform

38 Pages Posted: 5 Nov 2014 Last revised: 4 Oct 2015

See all articles by Na Zhang

Na Zhang

Purdue University - Krannert School of Management

Sumon Datta

Krannert School of Management, Purdue University

Karthik Natarajan Kannan

Purdue University

Date Written: October 17, 2015

Abstract

A crucial aspect to the functioning of the collaborative economy is the incentive structure that encourages participation. The objective of our research is to understand the impact of project reward structure (PRS), one form of incentives, on backers’ pledging decisions during projects’ funding period. To motivate the structural analysis, we first present a project-level reduced-form model to investigate the impact of the reward structure on project outcomes. From that, we find that dynamically modifying reward structures during project funding process has significantly positive impacts on influencing the project outcomes. We then develop a structural model to investigate how reward structures affect the reward-level decision making process by using a panel data. We found that reward levels that have been popular options till date or that have gained recent popularity are perceived to be more favorable if they are pushed lower down the menu of options, presumably by introducing weaker or less attractive options ahead of them in the menu. This implies that project creators do need to strategically design the PRS to attract more backers.

Keywords: Collaborative Economy, Incentive Design, Crowdfunding, Structural Model

Suggested Citation

Zhang, Na and Datta, Sumon and Kannan, Karthik Natarajan, An Analysis of Incentive Structures in Collaborative Economy: An Application to Crowdfunding Platform (October 17, 2015). Available at SSRN: https://ssrn.com/abstract=2518662 or http://dx.doi.org/10.2139/ssrn.2518662

Na Zhang (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Sumon Datta

Krannert School of Management, Purdue University ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Karthik Natarajan Kannan

Purdue University ( email )

Krannert School of Management
West Lafayette, IN 47907
United States

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