Crowdfunding as 'Donations': Theory & Evidence

Kevin J. Boudreau, Lars Bo Jeppesen, Toke Reichstein, Francesco Rullani

    Research output: Working paperResearch

    Abstract

    For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant “free-rider” problems in motivating contributions. Reviewing institutional features of today’s crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation — (i) direct psychological rewards, (ii) reciprocity and (iii) social interactions — can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.
    For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant “free-rider” problems in motivating contributions. Reviewing institutional features of today’s crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation — (i) direct psychological rewards, (ii) reciprocity and (iii) social interactions — can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.
    LanguageEnglish
    Place of PublicationBoston
    PublisherHarvard Business School
    Number of pages37
    StatePublished - 2015
    SeriesHarvard Business School Working Paper
    Number16-038

    Keywords

    • Crowdfunding platforms
    • Entrepreneurial finance
    • Free-riding
    • Voluntary contributions to public goods

    Cite this

    Boudreau, K. J., Jeppesen, L. B., Reichstein, T., & Rullani, F. (2015). Crowdfunding as 'Donations': Theory & Evidence. Boston: Harvard Business School. Harvard Business School Working Paper, No. 16-038
    Boudreau, Kevin J. ; Jeppesen, Lars Bo ; Reichstein, Toke ; Rullani, Francesco. / Crowdfunding as 'Donations' : Theory & Evidence. Boston : Harvard Business School, 2015. (Harvard Business School Working Paper; No. 16-038).
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    Boudreau, KJ, Jeppesen, LB, Reichstein, T & Rullani, F 2015 'Crowdfunding as 'Donations': Theory & Evidence' Harvard Business School, Boston.

    Crowdfunding as 'Donations' : Theory & Evidence. / Boudreau, Kevin J.; Jeppesen, Lars Bo; Reichstein, Toke; Rullani, Francesco.

    Boston : Harvard Business School, 2015.

    Research output: Working paperResearch

    TY - UNPB

    T1 - Crowdfunding as 'Donations'

    T2 - Theory & Evidence

    AU - Boudreau,Kevin J.

    AU - Jeppesen,Lars Bo

    AU - Reichstein,Toke

    AU - Rullani,Francesco

    PY - 2015

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    N2 - For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant “free-rider” problems in motivating contributions. Reviewing institutional features of today’s crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation — (i) direct psychological rewards, (ii) reciprocity and (iii) social interactions — can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.

    AB - For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant “free-rider” problems in motivating contributions. Reviewing institutional features of today’s crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation — (i) direct psychological rewards, (ii) reciprocity and (iii) social interactions — can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.

    KW - Crowdfunding platforms

    KW - Entrepreneurial finance

    KW - Free-riding

    KW - Voluntary contributions to public goods

    KW - Crowdfunding platforms

    KW - Entrepreneurial finance

    KW - Free-riding

    KW - Voluntary contributions to public goods

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    ER -

    Boudreau KJ, Jeppesen LB, Reichstein T, Rullani F. Crowdfunding as 'Donations': Theory & Evidence. Boston: Harvard Business School. 2015.