IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v38y2017i1p53-75.html
   My bibliography  Save this article

Mind the Gap: Crowdfunding and the Role of Seed Money

Author

Listed:
  • Joseph Deutsch
  • Gil S. Epstein
  • Alon Nir

Abstract

We analyze voluntary private contributions to public goods and the role seed money plays in signaling the public good's quality to potential subsequent contributors. We present a theoretical model and analyze two sets of naturally occurring data from crowdfunding platforms. After developing the theoretical background, we find statistically significant switch points that distinguish between seed contributions and subsequent contributions. A positive change in contribution behavior after the switch suggests an increase in the perceived value of the public good. We find that the signal comprises the number of contributors and the average contribution (as a proportion of the targeted goal). Copyright © 2015 John Wiley & Sons, Ltd.

Suggested Citation

  • Joseph Deutsch & Gil S. Epstein & Alon Nir, 2017. "Mind the Gap: Crowdfunding and the Role of Seed Money," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(1), pages 53-75, January.
    • Handle: RePEc:wly:mgtdec:v:38:y:2017:i:1:p:53-75
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jan Potters & Martin Sefton & Lise Vesterlund, 2007. "Leading-by-example and signaling in voluntary contribution games: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 169-182, October.
    2. Palfrey, Thomas R. & Rosenthal, Howard, 1984. "Participation and the provision of discrete public goods: a strategic analysis," Journal of Public Economics, Elsevier, vol. 24(2), pages 171-193, July.
    3. Bracha, Anat & Menietti, Michael & Vesterlund, Lise, 2011. "Seeds to succeed?: Sequential giving to public projects," Journal of Public Economics, Elsevier, vol. 95(5-6), pages 416-427, June.
    4. John A. List & David Lucking-Reiley, 2002. "The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 215-233, February.
    5. James Andreoni, 2006. "Leadership Giving in Charitable Fund‐Raising," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(1), pages 1-22, January.
    6. Potters, Jan & Sefton, Martin & Vesterlund, Lise, 2005. "After you--endogenous sequencing in voluntary contribution games," Journal of Public Economics, Elsevier, vol. 89(8), pages 1399-1419, August.
    7. Brubaker, Earl R, 1975. "Free Ride, Free Revelation, or Golden Rule?," Journal of Law and Economics, University of Chicago Press, vol. 18(1), pages 147-161, April.
    8. Bracha, Anat & Menietti, Michael & Vesterlund, Lise, 2011. "Seeds to succeed?," Journal of Public Economics, Elsevier, vol. 95(5), pages 416-427.
    9. Potters, J.J.M. & Sefton, M. & Vesterlund, L., 2005. "After you - endogenous sequencing in voluntary contribution games," Other publications TiSEM db491f52-df7b-43dd-ab2b-7, Tilburg University, School of Economics and Management.
    10. Hillman,Arye L., 2009. "Public Finance and Public Policy," Cambridge Books, Cambridge University Press, number 9780521494267, April.
    11. Bruno S. Frey & Stephan Meier, 2004. "Social Comparisons and Pro-social Behavior: Testing "Conditional Cooperation" in a Field Experiment," American Economic Review, American Economic Association, vol. 94(5), pages 1717-1722, December.
    12. Ido Erev & Amnon Rapoport, 1990. "Provision of Step-Level Public Goods," Journal of Conflict Resolution, Peace Science Society (International), vol. 34(3), pages 401-425, September.
    13. Spencer, Michael A. & Swallow, Stephen K. & Shogren, Jason F. & List, John A., 2009. "Rebate rules in threshold public good provision," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 798-806, June.
    14. Hillman,Arye L., 2009. "Public Finance and Public Policy," Cambridge Books, Cambridge University Press, number 9780521738057, April.
    15. Ajay Agrawal & Christian Catalini & Avi Goldfarb, 2014. "Some Simple Economics of Crowdfunding," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 63-97.
    16. Juanjuan Zhang & Peng Liu, 2012. "Rational Herding in Microloan Markets," Management Science, INFORMS, vol. 58(5), pages 892-912, May.
    17. Potters, J.J.M. & Sefton, M. & Vesterlund, L., 2007. "Leading-by-example and signaling in voluntary contribution games : An experimental study," Other publications TiSEM 1ea4e6c8-3071-46d8-a29f-0, Tilburg University, School of Economics and Management.
    18. Cadsby, Charles Bram & Maynes, Elizabeth, 1999. "Voluntary provision of threshold public goods with continuous contributions: experimental evidence," Journal of Public Economics, Elsevier, vol. 71(1), pages 53-73, January.
    19. Marks, Melanie & Croson, Rachel, 1998. "Alternative rebate rules in the provision of a threshold public good: An experimental investigation," Journal of Public Economics, Elsevier, vol. 67(2), pages 195-220, February.
    20. Bruno Frey & Stephan Meier, 2004. "In a field experiment," Natural Field Experiments 00243, The Field Experiments Website.
    21. Coats, Jennifer C. & Gronberg, Timothy J. & Grosskopf, Brit, 2009. "Simultaneous versus sequential public good provision and the role of refunds -- An experimental study," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 326-335, February.
    22. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luca Corazzini & Christopher Cotton & Enrico Longo & Tommaso Reggiani, 2021. "The Gates Effect in Public Goods Experiments: How Donations Flow to the Recipients Favored by the Wealthy," MUNI ECON Working Papers 2021-13, Masaryk University, revised Aug 2024.
    2. Luca Corazzini & Christopher Cotton & Enrico Longo & Tommaso Reggiani, 2022. "Pro-Rich and Progressive: Policy Selection and Contributions in Threshold Public Goods Experiments," Working Paper 1471, Economics Department, Queen's University.
    3. Bargain, Olivier & Cardebat, Jean-Marie & Vignolles, Alexandra, 2016. "Crowdfunding in Wine," Working Papers 234638, American Association of Wine Economists.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Krasteva, Silvana & Saboury, Piruz, 2021. "Informative fundraising: The signaling value of seed money and matching gifts," Journal of Public Economics, Elsevier, vol. 203(C).
    2. Simon Gaechter & Daniele Nosenzo & Elke Renner & Martin Sefton, 2009. "Sequential versus simultaneous contributions to public goods: Experimental evidence," Discussion Papers 2009-07, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    3. Bracha, Anat & Menietti, Michael & Vesterlund, Lise, 2011. "Seeds to succeed?," Journal of Public Economics, Elsevier, vol. 95(5), pages 416-427.
    4. Saboury, Piruz & Krasteva, Silvana & Palma, Marco A., 2022. "The effect of seed money and matching gifts in fundraising: A lab experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 425-453.
    5. Drouvelis, Michalis & Marx, Benjamin M., 2022. "Can charitable appeals identify and exploit belief heterogeneity?," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 631-649.
    6. Gregor Schwerhoff, 2016. "The economics of leadership in climate change mitigation," Climate Policy, Taylor & Francis Journals, vol. 16(2), pages 196-214, March.
    7. Edwards, James T. & List, John A., 2014. "Toward an understanding of why suggestions work in charitable fundraising: Theory and evidence from a natural field experiment," Journal of Public Economics, Elsevier, vol. 114(C), pages 1-13.
    8. Emrah Arbak & Marie-Claire Villeval, 2013. "Voluntary leadership: motivation and influence," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 40(3), pages 635-662, March.
    9. Gächter, Simon & Renner, Elke, 2018. "Leaders as role models and ‘belief managers’ in social dilemmas," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 321-334.
    10. Houser, Daniel & Levy, David M. & Padgitt, Kail & Peart, Sandra J. & Xiao, Erte, 2014. "Raising the price of talk: An experimental analysis of transparent leadership," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 208-218.
    11. John A. List & James J. Murphy & Michael K. Price & Alexander G. James, 2019. "Do Appeals to Donor Benefits Raise More Money than Appeals to Recipient Benefits? Evidence from a Natural Field Experiment with Pick.Click.Give," NBER Working Papers 26559, National Bureau of Economic Research, Inc.
    12. Felix Koelle, 2012. "Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision," Cologne Graduate School Working Paper Series 03-08, Cologne Graduate School in Management, Economics and Social Sciences.
    13. Simon Gaechter & Elke Renner, 2014. "Leaders as Role Models for the Voluntary Provision of Public Goods," Discussion Papers 2014-11, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    14. Huck, Steffen & Rasul, Imran, 2011. "Matched fundraising: Evidence from a natural field experiment," Journal of Public Economics, Elsevier, vol. 95(5-6), pages 351-362, June.
    15. Gregor Schwerhoff, 2013. "Leadership and International Climate Cooperation," Working Papers 2013.97, Fondazione Eni Enrico Mattei.
    16. Emrah Arbak & Marie Claire Villeval, 2013. "Voluntary Leadership: Selection and Influence," Post-Print halshs-00664830, HAL.
    17. Béatrice Boulu-Reshef & Nina Rapoport, 2020. "Voluntary contributions in cascades: The tragedy of ill-informed leadership," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02977853, HAL.
    18. Raphaële Préget & Phu Nguyen-Van & Marc Willinger, 2016. "Who are the voluntary leaders? Experimental evidence from a sequential contribution game," Theory and Decision, Springer, vol. 81(4), pages 581-599, November.
    19. Michalis Drouvelis & Benjamin M. Marx, 2021. "Dimensions of donation preferences: the structure of peer and income effects," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 274-302, March.
    20. Onderstal, Sander & Schram, Arthur J.H.C. & Soetevent, Adriaan R., 2013. "Bidding to give in the field," Journal of Public Economics, Elsevier, vol. 105(C), pages 72-85.

    More about this item

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H8 - Public Economics - - Miscellaneous Issues
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:38:y:2017:i:1:p:53-75. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.