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.
|Number of pages||20|
|Journal||European Economic Review|
|Early online date||11 Aug 2019|
|Publication status||Published - 1 Oct 2019|
- Equilibrium coordination
- Free riding
- Provision point mechanism
- Public goods
- Refund bonuses
ASJC Scopus subject areas
- Economics and Econometrics
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- Department of Economics - Senior Lecturer
- Economic Theory
Person: Research & Teaching