Abstract
The purpose of this paper is to study how different funding mechanisms affect donors’ and fundraisers’ incentives in crowdfunding markets – the Internet platforms that have revolutionized fundraising. In the first mechanism (All-or-Nothing), fundraisers receive the donations they raise only if it exceeds their funding target. Under the second mechanism (Keep-it-All), fundraisers receive the donations they raise regardless if it exceeds their funding target. I develop a model of donors’ preferences for crowdfunding that I estimate on a dataset that includes over a quarter-million fundraising campaigns collected directly from the two largest crowdfunding platforms. I then quantify the importance of donors’ incentives and fundraising sorting across the two platforms and the implications for platform revenues and market efficiency.
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