Why give if others will? Evidence of crowd-out in a crowdfunding platform

Hedieh Tajali and Piruz Saboury
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Piruz Saboury: University of Houston

No 322, Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: The increasing use of dynamic fundraising schemes such as crowdfunding has given rise to a relatively small but growing body of literature focusing on understanding the effectiveness of such techniques. In this paper, we first present a simple model of dynamic fundraising as a sequential-move threshold public goods game. We demonstrate that donors have an incentive to free-ride on expected future contributions, which leads to the following testable hypotheses for our empirical analysis: Donations are, all else equal, decreasing in accumulated past donations and increasing in time from the beginning of fundraising. In the next step, we analyse a rich dataset from a prominent crowdfunding platform. We find evidence that supports our hypotheses and shows the presence of a small but statistically significant forward-looking crowd-out among donors. On average, a one-percentage-point increase in past cumulative donations leads to a reduction of 0.05 percentage points in the amount contributed, while a one-percentage-point increase in time passed results in an increase of 0.03 percentage points in the amount contributed. In short, we observe that an increased prospect of future provision crowds out earlier contributions.

Keywords: public goods; philanthropy; fundraising; crowdfunding; free-riding; crowding-out. (search for similar items in EconPapers)
JEL-codes: D64 H00 H41 I22 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2025-08
New Economics Papers: this item is included in nep-mac
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