Mind the Gap: Crowd-Funding and the Role of Seed Money

47 Pages Posted: 6 Apr 2015

See all articles by Joseph Deutsch

Joseph Deutsch

Bar-Ilan University - Department of Economics

Gil S. Epstein

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; University College London - CReAM - Centre for Research and Analysis of Migration

Alon Nir

Bar-Ilan University

Abstract

We analyze voluntary private contributions to public goods and the role seed money plays in signaling the public good's quality to potential subsequent contributors. We present a theoretical model and analyze two sets of naturally occurring data from crowd-funding platforms. After developing the theoretical background we find statistically significant switch points which distinguish between seed contributions to subsequent contributions. A positive change in contribution behavior after the switch suggests an increase in the perceived value of the public good. We find that the signal comprises the number of contributors and the average contribution (as proportion of targeted goal).

Keywords: public goods, voluntary private provision, crowd-funding platform, seed money

JEL Classification: H4, H42, H8, D8

Suggested Citation

Deutsch, Joseph and Epstein, Gil S. and Nir, Alon, Mind the Gap: Crowd-Funding and the Role of Seed Money. IZA Discussion Paper No. 8955. Available at SSRN: https://ssrn.com/abstract=2589817

Joseph Deutsch (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972.5.318.3457 (Phone)
+972.3.535.3180 (Fax)

Gil S. Epstein

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972 3 531 8937 (Phone)
+972 3 535 3180 (Fax)

HOME PAGE: http://faculty.biu.ac.il/~epsteig/

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College London - CReAM - Centre for Research and Analysis of Migration ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

Alon Nir

Bar-Ilan University

Ramat Gan
Ramat Gan, 52900
Israel

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