Entrepreneurial Crowdfunding without Private Claims

Today's crowdfunding raises funds for tiny, private entrepreneurial ventures without granting funders private claims to a project's future value. Rather than “investments,” these are “contributions.” This paper argues that for such crowdfunding neither producer nor consumer surplus – i.e., project quality, in traditional terms – will play a role in determining funding. Private gifts to funders create typically weak incentives to contribute. Specific kinds of non-pecuniary motivations provide main incentives to contribute. We confirm predictions in time-series observational data set on gross contributions, communications and announcements, new version releases and policy changes, and product use from a representative project.