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Donation-based crowdfunding with refund bonuses

Timothy Cason () and Robertas Zubrickas

European Economic Review, 2019, vol. 119, issue C, 452-471

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.

Keywords: Public goods; Donations; Crowdfunding; Provision point mechanism; Refund bonuses; Free riding; Equilibrium coordination (search for similar items in EconPapers)
JEL-codes: C72 C92 H41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.euroecorev.2019.08.003

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