Borrowing or crowdfunding: a comparison of poverty alleviation participation modes considering altruistic preferences

Abstract

ABSTRACT In developing countries, farmers lack capital for market-oriented production and information for making informed production and sales decisions. To alleviate poverty, many enterprises, such as JD Finance, have developed crowdfunding poverty alleviation initiatives for poor farmers. In this mode, although enterprises provide a crowdfunding platform for farmers to raise production funds, farmers may incur sales losses. In this study, we investigate a fundamental question: how can we choose an optimal mode between crowdfunding and the traditional mode? Our analysis reveals that the optimal selection depends on the interaction of the consumer's willingness-to-pay and the cost coefficient for quality investment. Additionally, the degree of risk aversion, the lending rate, demand uncertainty and crowdfunding risk affect farmer selection. We demonstrate that when the scale of altruistic consumers is relatively small, the proportion of altruistic consumers and their motivation intensity are two interacting forces that steer the farmer's mode choice. Otherwise, a farmer's preferred mode choice relates only to the latter, and the former affects only the pricing strategy under the crowdfunding mode. Our study not only contributes to the emerging poverty alleviation literature but also provides managerial insights regarding the selection of the optimal mode for poverty alleviation for farmers.