The Impact of Algorithmic Components on Contributions in Charitable Crowdfunding

49 Pages Posted: 16 Jun 2022 Last revised: 1 Dec 2022

See all articles by Prasad Vana

Prasad Vana

Tuck School of Business at Dartmouth

Anja Lambrecht

London Business School

Date Written: November 30, 2022

Abstract

Crowdfunding platforms host thousands of projects and typically use ranking algorithms which, based on a set of project-specific variables, determine the rank order of projects in order to facilitate contributors’ choices and allow the platform to achieve specific goals. Here, we examine the role of individual components entering a ranking algorithm. We ask how such components affect project completion. We then explore whether ranking algorithms can help direct funding towards underprivileged groups. Last, we examine the trade-offs a crowdfunding charity faces between directing funding towards underprivileged groups and having a large number of projects complete. Our study is based on data and the ranking algorithm of the educational crowdfunding platform DonorsChoose. We develop a structural model of donors’ contributions using a multiple discrete continuous choice framework and report estimation results and counterfactual outcomes if the charity reweighted algorithmic components. We find that in the algorithm the amount remaining for a project, as well as other variables related to a project’s progress, strongly affect whether a project will be fully funded. At the same time, our results indicate that prioritizing in the algorithm projects from high poverty schools increases contributions to such schools significantly. Encouragingly, our findings further suggest that, at least in our empirical context, using the algorithm to direct funding towards high poverty schools does not compromise the platform’s overall goal to collect a large amount of funding overall.

JEL Classification: M31

Suggested Citation

Vana, Prasad and Lambrecht, Anja, The Impact of Algorithmic Components on Contributions in Charitable Crowdfunding (November 30, 2022). Tuck School of Business Working Paper No. 4132785, Available at SSRN: https://ssrn.com/abstract=4132785 or http://dx.doi.org/10.2139/ssrn.4132785

Prasad Vana (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.prasadvana.com

Anja Lambrecht

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

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