Understanding Reward Delivery Obligations in Reward-based Crowdfunding: A Theoretical Analysis

Abstract

Crowdfunding has emerged as a significant and growing source of capital for entrepreneurs. Among major forms of crowdfunding, reward-based crowdfunding (RBC) model is the most prevalent one. In this paper, we focus on the implementation stage of the RBC model and build an integrated theoretical framework to explain the commonly observed failures and delays in delivery of rewards to investors and to explain how these failures and delays may be perceived by investors as violations of entrepreneurs’ reward delivery obligations. We review RBC as a contractual relationship between entrepreneurs and investors. Drawing on entrepreneurial personality theory and psychological contract theory, we develop propositions and identify factors related to both entrepreneurs (overconfidence and narcissism) and factors related to investors (types of motivators and psychological contracts) that may explain failures and delays in reward delivery as well as perceived violations of reward delivery obligations. Implications for theory and practice are also discussed.