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Budget Disclosure in Crowdfunding: Information Asymmetry and Cost Transparency

Author

Listed:
  • Wayne Fu

    (College of Business, University of Michigan–Dearborn, Dearborn, Michigan 48128)

  • Guangzhi Shang

    (W. P. Carey School of Business, Arizona State University, Phoenix, Arizona 85287; and College of Business, Florida State University, Tallahassee, Florida 32306)

  • Xun Tong

    (Faculty of Economics and Business, University of Groningen, 9712 CP Groningen, Netherlands)

Abstract

Problem definition : This paper investigates how a crowdfunding campaign’s voluntary disclosure of sensitive cost information affects its funding performance on Kickstarter—a mainstream, primarily reward-based crowdfunding platform. Instead of enhancing a campaign’s marketing traits, project budget as a novel information-provision tool reminds the crowd of the behind-the-scenes operations for developing and executing a project. This resembles the radical practice of cost transparency recently observed in the retail industry and studied experimentally in the literature. We also separate the disclosure effect on reward seeking versus altruistic pledges and examine how it varies with the structure of the cost items (fixed versus variable costs). Methodology/results : Our data collection follows Kickstarter’s rollout of the Project Budget tool in 2019. The project-level raw data are preprocessed via coarsened exact matching to match projects with and without budgets. We show that the main channel through which budget provision improves funding performance is via attracting additional funding, not by cannibalizing competing projects. Because of the voluntary nature of budget provision, we address the resulting endogeneity issue using peer average-style instruments. Budget provision on average increases funding performance by over 100%, which is more effective than many information-provision tools studied. Interestingly, this funding improvement comes from an increased number of backers (width), not from a higher pledge per backer (depth), and from a considerably higher number of altruistic pledges, not from more reward-seeking pledges. Further, a higher fixed-cost (over total cost) ratio, which is indicative of a higher profit margin, significantly reduces the benefit but does not make disclosure backfire. Managerial implications : Showing the costs to customers can be highly effective in business settings where trust between stakeholders is critical, which implies a promising generalization to donation-based crowdfunding. Our results can also be used to guide a sequential rollout of the Project Budget feature across campaign categories and promote adoption rates.

Suggested Citation

  • Wayne Fu & Guangzhi Shang & Xun Tong, 2025. "Budget Disclosure in Crowdfunding: Information Asymmetry and Cost Transparency," Manufacturing & Service Operations Management, INFORMS, vol. 27(2), pages 659-678, March.
  • Handle: RePEc:inm:ormsom:v:27:y:2025:i:2:p:659-678
    DOI: 10.1287/msom.2022.0374
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