When Reward Meets Donation
39 Pages Posted: 20 Dec 2023
Date Written: December 14, 2023
Abstract
Reward-based crowdfunding platforms increasingly incorporate donation options, allowing backers to financially support campaigns without receiving tangible rewards in return. Although this option seems to create a novel fundraising channel, its effect on fundraising was not ex-ante clear. Our analysis of data from a quasi-natural experiment highlights the potential negative impacts of individual donation occurrences. Surprisingly, we find that it reduced the total raised funds. We explore two primary mechanisms responsible for this adverse effect. First, the crowding-out effect, where prior donations discourage potential backers from supporting the campaign, causing them to either forgo reward purchases or decrease their contribution amounts. Second, the social conformity effect, in which prior donations shape backers' perceptions of social norms and consequently lower their support levels. By offering a comprehensive understanding of behavioral dynamics in crowdfunding, our study enriches the literature on the design and management of crowdfunding platforms and provides valuable insights for industry practitioners.
Keywords: Reward-based crowdfunding, charitable giving, peer influence, crowding-out, social conformity
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