Crowdfunding as 'Donations': Theory & Evidence

37 Pages Posted: 6 Oct 2015 Last revised: 27 Oct 2015

Kevin Boudreau

Northeastern University - Innovation & Entrepreneurship; Dept. of Economics; College of Computer & Information Sciences; Harvard University - Institute for Quantitative Social Science; National Bureau of Economic Research (NBER)

Lars Bo Jeppesen

Copenhagen Business School - Department of Innovation and Organizational Economics

Toke Reichstein

Copenhagen Business School - Department of Innovation and Organizational Economics

Francesco Rullani

LUISS Guido Carli - Department of Business and Management; Copenhagen Business School - Department of Innovation and Organizational Economics

Date Written: September 30, 2015

Abstract

For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant “free-rider” problems in motivating contributions. Reviewing institutional features of today’s crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation — (i) direct psychological rewards, (ii) reciprocity and (iii) social interactions — can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.

Keywords: Crowdfunding platforms, entrepreneurial finance, free-riding, voluntary contributions to public goods

Suggested Citation

Boudreau, Kevin and Jeppesen, Lars Bo and Reichstein, Toke and Rullani, Francesco, Crowdfunding as 'Donations': Theory & Evidence (September 30, 2015). Harvard Business School Strategy Unit Working Paper No. 16-038. Available at SSRN: https://ssrn.com/abstract=2669545 or http://dx.doi.org/10.2139/ssrn.2669545

Kevin Boudreau (Contact Author)

Northeastern University - Innovation & Entrepreneurship; Dept. of Economics; College of Computer & Information Sciences ( email )

Harvard University - Institute for Quantitative Social Science ( email )

1737 Cambridge St.
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lars Bo Jeppesen

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Toke Reichstein

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Francesco Rullani

LUISS Guido Carli - Department of Business and Management ( email )

Viale Pola 12
Rome, 00198
Italy

Copenhagen Business School - Department of Innovation and Organizational Economics

Kilevej 14A
Frederiksberg, 2000
Denmark

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