Legitimacy and Reciprocal Altruism in Donation-Based Crowdfunding: Evidence from India
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Journal of Risk and Financial Management Article Legitimacy and Reciprocal Altruism in Donation-Based Crowdfunding: Evidence from India Indu Khurana Department of Economics and Business, Hampden–Sydney College, 172 Via Sacra, Hampden-Sydney, VA 23943, USA; [email protected] Abstract: The donation-based crowdfunding platforms witness a mix of different entities seeking funding for numerous campaigns, adding complexities in understanding the donor behavior and factors that motivate donation. This study builds upon the economic theory of charitable giving and examines the ethical dilemma that donors face during the selection process. Using the data from Ketto.org, the biggest crowdfunding platform in India, this paper investigates the rank-order preference of donors while making a selection across heterogeneous entities and campaigns. The results show that campaigns run by non-profit organizations registered with causes that qualify for a tax-deduction receive a higher level of funding. Donors then fund unregistered non-profit organizations, followed by campaigns run by individuals. Demonstrating legitimacy by using subtle cues, like tagging “with tax-benefit,” motivates the donors to provide a higher amount of funding. Keywords: crowdfunding; donation; altruism; legitimacy; India 1. Introduction Citation: Khurana, Indu. 2021. Crowdfunding has emerged as one of the dominant forms of financing new campaigns Legitimacy and Reciprocal Altruism and has gained legitimacy across the globe as a worldwide phenomenon (Alegre and in Donation-Based Crowdfunding: Moleskis 2019; Frydrych et al. 2014). Crowdfunding mobilizes large crowds through social Evidence from India. Journal of Risk media and online platforms to facilitate access to a large number of small donations. The and Financial Management 14: 194. broader contextual classification of crowdfunding depends on the type of return generated https://doi.org/10.3390/jrfm14050194 by the campaign and can, therefore, take various forms—reward, equity, debt, or donation (Belleflamme et al. 2014; Mollick 2014). So far, the research has advanced more in exploring Academic Editor: Douglas Cumming patterns and factors that impact the success of reward-based crowdfunding platforms, including debt and equity models (Block et al. 2018; Bruton et al. 2015; Lim and Busenitz Received: 10 March 2021 2020; Ly and Mason 2012; Mohammadi and Shafi 2017; Moritz et al. 2015; Ralcheva and Accepted: 21 April 2021 Published: 25 April 2021 Roosenboom 2020; Thies et al. 2019). There is comparatively little work that examines which factors motivate donors to give money to donation-based crowdfunding models Publisher’s Note: MDPI stays neutral (Calic and Mosakowski 2016; Lehner and Nicholls 2014; Lehner 2013, 2014; Saxton and with regard to jurisdictional claims in Wang 2014). published maps and institutional affil- The question of what motivates people to support a social cause and specific entities iations. has intrigued academics for decades (Andreoni 1989, 1990; Bekkers and Wiepking 2011; Vesterlund 2006). The literature on the economic theory of charitable giving provides evi- dence that donors consider various factors before making a charitable donation, including the credibility, mission, and accountability of the fund-seeking entity in the marketplace (Ottoni-Wilhelm et al. 2017; Vesterlund 2006). Rose-Ackerman(1996) examines the link Copyright: © 2021 by the author. Licensee MDPI, Basel, Switzerland. between donor’s motivation in charitable giving and the structure of the entity seeking This article is an open access article funds and inquires, “does organizational form determine behavior, or does it provide distributed under the terms and a flexible structure that can accommodate a wide range of human objectives?” (p. 723). conditions of the Creative Commons The author further mentions that entities seeking funding are all equal; however, one can Attribution (CC BY) license (https:// identify the factors that impact donor motivation in different situations and also the rank creativecommons.org/licenses/by/ ordering of preference that donors display. The structure of the entity seeking funding 4.0/). does influence what people fund and why. J. Risk Financial Manag. 2021, 14, 194. https://doi.org/10.3390/jrfm14050194 https://www.mdpi.com/journal/jrfm J. Risk Financial Manag. 2021, 14, x FOR PEER REVIEW 2 of 17 J. Risk Financial Manag. 2021, 14, 194 ordering of preference that donors display. The structure of the entity seeking funding2 of 16 does influence what people fund and why. 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The of donation-based economic theory crowdfunding has been applied campaigns in a (similarAndreoni context 1989, 1990to examine; Rose- Ackermandonor motivation 1996). The across economic the microlending theory has crowdfunding been applied in platforms a similar (Gleasure context to and examine Feller donor2016; Ly motivation and Mason across 2012). the However, microlending there crowdfunding is little work that platforms extends (Gleasure the fundamentals and Feller of 2016economic; Ly and theory Mason in 2012donation-based). However, crowdfun there is littleding, work especially that extends for developing the fundamentals economies of economic(Li et al. 2018). theory Specifically, in donation-based this study crowdfunding, seeks answers especially to the two for main developing questions—whether economies (theLi et legitimacy al. 2018). Specifically,of the fund seeker this study plays seeks a role answers in donation-based to the two maincrowdfunding, questions—whether if yes, how the legitimacy of the fund seeker plays a role in donation-based crowdfunding, if yes, how do fund seekers signal that legitimacy. do fund seekers signal that legitimacy. The study uses around 450 crowdfunding campaigns run on Ketto, one of India’s The study uses around 450 crowdfunding campaigns run on Ketto, one of India’s largest crowdfunding websites. Ketto generates two signals on the campaign home page largest crowdfunding websites. Ketto generates two signals on the campaign home page that indicate, first, if an individual or an NPO runs the campaign, and second if that spe- that indicate, first, if an individual or an NPO runs the campaign, and second if that specific cific NPO provides tax deduction benefit or not. For the second signal, Ketto runs a special NPO provides tax deduction benefit or not. For the second signal, Ketto runs a special banner on the home page of the campaign that says “Tax-Benefit” if the donor can claim banner on the home page of the campaign that