Internalizing the Externalities of Overfunding: An Agent‑Based Model Approach for Analyzing the Market Dynamics on Crowdfunding Platforms

Journal of Business Economics 2021, Online first: https://link.springer.com/content/pdf/10.1007/s11573-021-01045-w.pdf.

Posted: 2 Jun 2021

See all articles by Jascha-Alexander Koch

Jascha-Alexander Koch

University Siegen - School of Economic Disciplines; University of Siegen

Jens Lausen

Goethe University Frankfurt - Faculty of Economics and Business Administration

Moritz Kohlhase

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: May 25, 2021

Abstract

Crowdfunding platforms offer project initiators the opportunity to acquire funds 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 funding. We propose a funding redistribution mechanism to internalize these overfunding externalities and to improve overall funding results. To evaluate this concept, we develop and deploy an agent-based model (ABM). This ABM is based on a multi-attribute decision-making approach and is suitable to simulate the dynamic funding processes on 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, Overfunding, Internalization of externalities, Pigouvian tax, Agent-based modeling, Market engineering

Suggested Citation

Koch, Jascha-Alexander and Lausen, Jens and Kohlhase, Moritz, Internalizing the Externalities of Overfunding: An Agent‑Based Model Approach for Analyzing the Market Dynamics on Crowdfunding Platforms (May 25, 2021). Journal of Business Economics 2021, Online first: https://link.springer.com/content/pdf/10.1007/s11573-021-01045-w.pdf., Available at SSRN: https://ssrn.com/abstract=3852810

Jascha-Alexander Koch (Contact Author)

University Siegen - School of Economic Disciplines ( email )

Unteres Schloss
Post Box 29
Siegen, 57072
Germany

University of Siegen ( email )

Hoelderlinstrasse 3
57068 Siegen, NRW 57068
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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
296
PlumX Metrics