Early Refund Bonuses Increase Successful Crowdfunding

Timothy Cason, Alexander Tabarrok, Robertas Zubrickas

Research output: Contribution to journalArticlepeer-review

8 Citations (SciVal)
70 Downloads (Pure)

Abstract

The assurance contract mechanism is often used to crowdfund public goods. This mechanism has weak implementation properties that can lead to miscoordination and failure to produce socially valuable projects. To encourage early contributions, we extend the assurance contract mechanism with refund bonuses rewarded only to early contributors in the event of fundraising failure. The experimental results show that our proposed solution is very effective in inducing early cooperation and increasing fundraising success. Limiting refund bonuses to early contributors works as well as offering refund bonuses to all potential contributors, while also reducing the amount of bonuses paid. We find that refund bonuses can increase the rate of campaign success by 50% or more. Moreover, we find that even taking into account campaign failures, refund bonuses can be financially self-sustainable suggesting the real world value of extending assurance contracts with refund bonuses.
Original languageEnglish
Pages (from-to)78-95
Number of pages18
JournalGames and Economic Behavior
Volume129
Early online date28 May 2021
DOIs
Publication statusPublished - 30 Sept 2021

Bibliographical note

Funding Information:
We thank Jacob Brindley and Peter Wagner for excellent research assistance, and two anonymous reviewers, an advisory editor, and various seminar and conference audiences for valuable comments. We especially thank Yancey Strickler, co-founder of Kickstarter, and Jon Leland, Vice President of Insights, Kickstarter, for very useful comments. The Eric and Wendy Schmidt Fund for Strategic Innovation provided financial support.

Keywords

  • Assurance contract
  • Conditional cooperation
  • Donations
  • Early contributions
  • Experiment
  • Free riding
  • Laboratory
  • Public goods
  • Refund bonuses

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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