Crowdfunding Public Goods: an Experiment

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Crowdfunding Public Goods: an Experiment A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Ansink, Erik; Koetse, Mark; Bouma, Jetske; Hauck, Dominic; van Soest, Daan Working Paper Crowdfunding public goods: An experiment Tinbergen Institute Discussion Paper, No. 17-119/VIII Provided in Cooperation with: Tinbergen Institute, Amsterdam and Rotterdam Suggested Citation: Ansink, Erik; Koetse, Mark; Bouma, Jetske; Hauck, Dominic; van Soest, Daan (2017) : Crowdfunding public goods: An experiment, Tinbergen Institute Discussion Paper, No. 17-119/VIII, Tinbergen Institute, Amsterdam and Rotterdam This Version is available at: http://hdl.handle.net/10419/177687 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu TI 2017-119/VIII Tinbergen Institute Discussion Paper Crowdfunding public goods: An experiment Erik Ansink1 Mark Koetse3 Jetske Bouma2,3 Dominic Hauck3 Daan van Soest4 1 VU Amsterdam; Tinbergen Institute, The Netherlands 2 Netherlands Environmental Assessment Agency (PBL) 3 Institute for Environmental Studies, Vrije Universiteit Amsterdam 4 Department of Economics and CentER, Tilburg University Tinbergen Institute is the graduate school and research institute in economics of Erasmus University Rotterdam, the University of Amsterdam and VU University Amsterdam. Contact: [email protected] More TI discussion papers can be downloaded at http://www.tinbergen.nl Tinbergen Institute has two locations: Tinbergen Institute Amsterdam Gustav Mahlerplein 117 1082 MS Amsterdam The Netherlands Tel.: +31(0)20 598 4580 Tinbergen Institute Rotterdam Burg. Oudlaan 50 3062 PA Rotterdam The Netherlands Tel.: +31(0)10 408 8900 Crowdfunding public goods: An experiment∗ Erik Ansink,a Mark Koetse,b Jetske Bouma,c Dominic Hauck,b Daan van Soestd December 14, 2017 Abstract We assess the impact of different crowdfunding designs on the success of crowd- funded public goods using a lab-in-the-field experiment. Our design treatments aim to increase the efficiency of crowdfunding campaigns by raising aggregate contributions and decreasing possible coordination problems that may occur when potential donors are faced with a multitude of projects seeking contributions. Amongst others, we explore the potential of seed money and the impact of the attraction effect. Using a four-day time window we implement our crowdfunding experiment using a web-based user interface with multiple threshold public goods, similar in style to conventional crowdfunding websites. We find that such alternative crowdfunding designs affect efficiency via improving coordination, and not so much via affecting total contributions. These results are confirmed in a follow-up framed field experiment with actual nature conservation projects. JEL Classification: C93, H41, L31, Q57 Keywords: Crowdfunding, lab-in-the-field experiment, threshold public goods, chari- table giving, nature conservation ∗We thank Harold Houba, Jos van Ommeren, seminar participants at Vrije Universiteit Amsterdam, EAERE 2017, BioEcon 2017, Netherlands Economists Day 2017, and the 2017 Workshop on Experimental Economics for the Environment in Bremen for comments, suggestions, and discussion. We thank Natuurmonumenten and Kantar TNS for excellent support and advice. We are grateful to the Netherlands Environmental Assessment Agency for financial support. Ansink, Bouma, and Hauck gratefully acknowledge financial support from the Netherlands Organisation for Scientific Research (NWO) Grant No. 841.12.002. Koetse gratefully acknowledges funding from the European Commission 7th Framework Programme Grant No. 308393. Van Soest gratefully acknowledges funding from the European Commission 7th Framework Program Grant No. 613420. aDepartment of Spatial Economics, Vrije Universiteit Amsterdam, and Tinbergen Institute. bInstitute for Environmental Studies, Vrije Universiteit Amsterdam. cNetherlands Environmental Assessment Agency (PBL) and Institute for Environmental Studies, Vrije Universiteit Amsterdam. d Department of Economics and CentER, Tilburg University. 1 1 Introduction Crowdfunding websites are increasingly being used as a mechanism for the provision of public goods. Crowdfunding is the practice of a fund-raiser raising capital from many investors to fund a project through an on-line platform. Crowdfunding is new, with well- known platforms such as FundRazr, GoFundMe, Kickstarter, and IndieGoGo having been launched only in the late 2000s. The crowdfunding of public goods, sometimes referred to by the more encompassing term ‘civic’ crowdfunding (Davies, 2015; Stiver et al., 2015; Chovanculiak and Hudik, 2017), has found its niche on these platforms but its popularity also initiated specialized crowdfunding websites such as Citizinvestor, IOBY, JustGiving, and GlobalGiving. A large share of civic crowdfunding involves projects related to urban commons (e.g. gardens, parks, events), education, infrastructure, and environment/wildlife (Charbit and Desmoulins, 2017). Using crowdfunding as a mechanism to provide public goods may mitigate several obsta- cles that are normally associated with private public good provisioning. For instance, com- pared to alternative mechanisms, crowdfunding allows cheap matching between projects and potential donors through low search costs, low risk exposure, low demand uncertainty, and transparent monitoring of progress (Cornes and Sandler, 1996; Agrawal et al., 2014; Strausz, 2017). Yet, other obstacles remain, including cheap-riding and coordination problems. Cheap-riding occurs whenever agents contribute to the public good but try to reach an outcome where their own relative contribution is low (Isaac et al., 1989). Coordi- nation failure occurs when the multiplicity of projects offered on a crowdfunding platform causes an ‘inefficient distribution of donations across projects’ (Corazzini et al., 2015, p17), possibly leading to project failure and discouraging potential donors. As sometimes half of the projects fail (see for example Mollick, 2014, for the case of Kickstarter), there is room for improvement – raising the total contributions to public goods projects, or improving coordination on specific projects. Most crowdfunding platforms offer an all-or-nothing design, where contributions are effectuated only if a pre-specified threshold is met. This design thus mimics a threshold public goods game with full refund – a design which is known to boost donations in such games (Cadsby and Maynes, 1999). Yet, by itself this design does not solve cheap-riding and coordination problems, which potentially have more impact on crowdfunding success. Both cheap-riding and coordination problems could be further mitigated by signaling focal projects, for instance by promoting such projects more prominently on the crowdfunding platform. Signaling has been demonstrated to facilitate success in coordination games (Schelling, 1960; Mehta et al., 1994). In crowdfunding, signals used by fund-raisers include 2 short time windows and high thresholds while signals used by the platforms include all kinds of website design options such as the selection of featured projects (Mollick, 2014; Belleflamme et al., 2015; Devaraj and Patel, 2016).1 Identification of the impact of such signals in practice is inevitably muddled by endogeneity problems. In this paper we rigorously test the impact of various crowdfunding designs, and specifically the use of focal projects, on project success. We do so using a lab-in-the-field experiment to control for possible endogeneity problems. We investigate two mechanisms that aim to raise total contributions and/or facilitate coordination by signaling focal projects. The first is the provision of seed money (also known as ‘challenge gifts’: List and Lucking- Reiley, 2002; Rondeau and List, 2008). The second mechanism is adding a seemingly irrelevant project that serves as a decoy in order to exploit the so-called attraction effect (cf. Ariely and Wallsten, 1995). From the crowdfunding platform and fund-raisers’ perspective, our contribution is that we analyze whether the number of successful projects can be increased through the mitigation of cheap-riding and coordination failure, and if so, how.2 Our lab-in-the-field experiment aims to extend the insights obtained by earlier crowd- funding experiments in the laboratory in two respects (Wash and Solomon, 2014; Corazzini et al., 2015; Solomon et al., 2015). First, our lab-in-the-field experiment took place over a period of four days (Thursday mornings to Sunday evenings), with subjects
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