Over-Pledging in Crowdfunding: Evidence from Kickstarter

Abstract

In the context of online reward-based crowdfunding, it is a recurring phenomenon for backers to pledge financial amounts exceeding the established requisites. This paper delineates the scope, variations, and potential correlates of such over-pledging behavior, utilizing a pledge-level dataset sourced from Kickstarter. First, over-pledged funding was common (22% of backers), substantial (19% of the total pledge amount), and essential to the success of projects. Second, significant variations in over-pledging across projects were observed. On average, the proportion of over-pledged funding to the total pledged amount for a project within dance/theatre categories surpassed that of a project within games/design categories by more than 20%. In examining the over-pledging backers, we identified two types: donors, who contribute without seeking a reward, and funders, who pledge additional sums for rewards. In alignment with extant literature on voluntary contributions, our empirical evidence lends support to (pure or impure) altruism and various strategic considerations as potential drivers of donors' contributions. Conversely, by contrasting the over-pledging patterns of funders with those of donors, we pinpoint the equitable distribution of surplus as a significant motivation underlying funders' over-pledging. Leveraging an exogenous shock at the project level, we further ascertain that funders' perceived fair value tends to escalate in response to successful crowdfunding initiatives. Overall, our findings underscore the significance of over-pledging and underline the necessity for creators to customize strategies for project setup according to their target audience, distinguishing between funders and donors.

Keywords: Crowdfunding, Over-Pledging, Pay-what-you-want, Altruism, Inequity aversion

JEL Classification: M31, L26, L17, O31