Donation-Based Crowdfunding with Refund Bonuses

Timothy Cason, Robertas Zubrickas

Research output: Contribution to journalArticle

Abstract

We study donation-based crowdfunding for threshold public good provision. Our main focus is on an extension with refund bonuses aimed at resolving the problems of equilibrium coordination and free riding. In the case of insufficient contributions, contributors not only have their contributions refunded but they also receive refund bonuses proportional to their pledged contributions. Thus, refund bonuses encourage more contributions but ultimately enough is raised given sufficient preference for the public good and in equilibrium no bonuses need to be paid. We test the predicted effects of refund bonuses in an experiment using a laboratory-based crowdfunding platform that features many main aspects of real-life platforms. Our main empirical result is that refund bonuses substantially increase the rate of funding success when contributors can support multiple projects. Furthermore, our findings also demonstrate that refund bonuses lead to significant economic gains even after accounting for their costs.

Original languageEnglish
Pages (from-to)452-471
Number of pages20
JournalEuropean Economic Review
Volume119
Early online date11 Aug 2019
DOIs
Publication statusPublished - 1 Oct 2019

Keywords

  • Crowdfunding
  • Donations
  • Equilibrium coordination
  • Free riding
  • Provision point mechanism
  • Public goods
  • Refund bonuses

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Donation-Based Crowdfunding with Refund Bonuses. / Cason, Timothy; Zubrickas, Robertas.

In: European Economic Review, Vol. 119, 01.10.2019, p. 452-471.

Research output: Contribution to journalArticle

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