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 language | English |
|---|---|
| Pages (from-to) | 78-95 |
| Number of pages | 18 |
| Journal | Games and Economic Behavior |
| Volume | 129 |
| Early online date | 28 May 2021 |
| DOIs | |
| Publication status | Published - 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