Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions

22 Pages Posted: 6 May 2015

See all articles by Ajay Agrawal

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; National Bureau of Economic Research (NBER)

Avi Goldfarb

University of Toronto - Rotman School of Management

Date Written: Summer 2015

Abstract

We examine a crowdfunding platform that connects artists with funders. Although the Internet reduces many distance‐related frictions, local and distant funders exhibit different funding patterns. Local funders appear less responsive to information about the cumulative funds raised by an artist. However, this distance effect appears to proxy for a social effect: it is largely explained by funders who likely have an offline social relationship with the artist (“friends and family”). Yet, this social effect does not persist past the first investment, suggesting that it may be driven by an activity like search but not monitoring. Thus, although the platform seems to diminish many distance‐sensitive costs, it does not eliminate all of them. These findings provide a deeper understanding of the abilities and limitations of online markets to facilitate transactions and convey information between buyers and sellers with varying degrees of social connectedness.

Suggested Citation

Agrawal, Ajay and Catalini, Christian and Goldfarb, Avi, Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions (Summer 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 2, pp. 253-274, 2015. Available at SSRN: https://ssrn.com/abstract=2602990 or http://dx.doi.org/10.1111/jems.12093

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
United States

Christian Catalini

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

100 Main Street
E62-480
Cambridge, MA MA 02142
United States

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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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