Towards Internalizing the Externalities of Overfunding – Introducing a 'Tax' on Crowdfunding Platforms

Proceedings of the 26th European Conference on Information Systems (ECIS 2018); Portsmouth, UK

15 Pages Posted: 23 Aug 2018

See all articles by Jascha-Alexander Koch

Jascha-Alexander Koch

Goethe University Frankfurt - Faculty of Economics and Business Administration

Jens Lausen

Goethe University Frankfurt - Faculty of Economics and Business Administration

Moritz Kohlhase

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: June 27, 2018

Abstract

Crowdfunding platforms offer project initiators the opportunity to acquire monetary resources from the Internet crowd and therefore have become a valuable alternative to traditional sources of funding. However, some processes on crowdfunding platforms cause undesirable external effects that influence the funding success of projects. In this context, we focus on the phenomenon of project overfunding. Massively overfunded projects have been discussed to overshadow other crowdfunding projects which in turn receive less money. We propose a taxation mechanism to internalize these overfunding externalities and to improve overall funding results. To evaluate this concept, we develop and deploy a sophisticated agent-based model (ABM). This ABM is based on a multi-attribute decision-making (MADM) approach and is appropriate to simulate the dynamic funding processes of a crowdfunding platform. Our evaluation provides evidence that possible modifications of the crowdfunding mechanisms bear the chance to optimize funding results and to alleviate existing flaws.

Keywords: Crowdfunding, Crowdlending, Crowdinvesting, Overfunding, External Effects, Internalization of Externalities, Pigouvian Tax, Agent-Based Modeling, Market Engineering

Suggested Citation

Koch, Jascha-Alexander and Lausen, Jens and Kohlhase, Moritz, Towards Internalizing the Externalities of Overfunding – Introducing a 'Tax' on Crowdfunding Platforms (June 27, 2018). Proceedings of the 26th European Conference on Information Systems (ECIS 2018); Portsmouth, UK. Available at SSRN: https://ssrn.com/abstract=3223389

Jascha-Alexander Koch (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Hauspostfach 69
Frankfurt, 60629
Germany

Jens Lausen

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, D-60323
Germany

Moritz Kohlhase

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Hauspostfach 69
Frankfurt am Main, D-60629
Germany

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