Rick Wash

Associate Professor,
University of Wisconsin, Madison

Contact Info

Coordinating Donors on Crowdfunding Websites

by: Rick Wash and Jacob Solomon

Abstract

Crowdfunding websites like Kickstarter, Spot.Us and Donor’s Choose seek to fund multiple projects simultaneously by soliciting donations from a large number of donors. Crowdfunding site designers must decide what to do with donations to projects that don’t reach their goal by the deadline. Some crowdfunding sites use an all-or-nothing return rule in which donations are returned to donors if a project doesn’t meet its goal. Other sites use a direct donation structure where all donations are kept by the project even if the total is insufficient.

We simulated a crowdfunding site using a threshold public goods game in which a set of donors tries to fund multiple projects that vary in riskiness. We find that the return rule mechanism leads to a marginal improvement in productivity of a site – more money is donated in total – by eliciting more donations. However, the return rule also leads to a potential loss in efficiency (percentage of projects funded) because donations become spread across too many projects and are not coordinated to achieve the maximum possible impact. The direct donation model, though, encourages donors to coordinate to creates a more efficient but slightly less productive marketplace.