Early refund bonuses increase successful crowdfunding

Timothy Cason, Alexander Tabarrok and Robertas Zubrickas

Games and Economic Behavior, 2021, vol. 129, issue C, 78-95

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.

Keywords: Public goods; Donations; Assurance contract; Free riding; Conditional cooperation; Early contributions; Refund bonuses; Experiment; Laboratory (search for similar items in EconPapers)
JEL-codes: C72 C92 H41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Early Refund Bonuses Increase Successful Crowdfunding (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:129:y:2021:i:c:p:78-95

DOI: 10.1016/j.geb.2021.05.006

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