Enhancing fundraising with refund bonuses

Abstract

The provision point mechanism as a method of funding threshold public goods is extended with refund bonuses. Each contributor not only has his contribution refunded in the case of insufficient contributions but also receives a refund bonus proportional to his proposed contribution. As long as the refund bonus pool does not exceed the net value of the public good, in equilibrium the public good is always provided and refund bonuses are never distributed. In this paper, we empirically investigate this extension of the provision point mechanism in a laboratory experiment by testing its properties on allocative and distributive efficiency, equilibrium coordination, and invariance to information distribution. Individuals respond to the incentives induced by refund bonuses as predicted, but systematic deviations exist that are consistent with quantal response equilibrium. Since this simple mechanism has considerable practical potential especially in crowdfunding, these promising initial results call for further experimental work.

Donation-based crowdfunding with refund bonuses

“…Refund bonus mechanisms do not yet exist on crowdfunding platforms, so it is important to study whether they can increase funding and economic returns in more realistic dynamic environments. We find that in the setting with multiple funding campaigns, the 6 Besides considering only simultaneous contributions, the experiment in Cason and Zubrickas (2017) employed an environment that is considerably different from the one studied here and from crowdfunding in practice. In Cason and Zubrickas (2017) contributors could only pledge support for one project at a time, they could not add additional contributions to this project, and they faced no aggregate uncertainty since the total value of the project was known and unchanging across periods.…”

“…We find that in the setting with multiple funding campaigns, the 6 Besides considering only simultaneous contributions, the experiment in Cason and Zubrickas (2017) employed an environment that is considerably different from the one studied here and from crowdfunding in practice. In Cason and Zubrickas (2017) contributors could only pledge support for one project at a time, they could not add additional contributions to this project, and they faced no aggregate uncertainty since the total value of the project was known and unchanging across periods. Treatments in that study included only large refund bonuses (25, 50 and 75%) to explore some counter-intuitive predictions of the mechanism's equilibria.…”

“…The findings of Cason and Zubrickas (2017), which is the first experimental study on refund bonuses, considered only a static (simultaneous contributions) environment and provide further motivation for the present study. 6 First, Cason and Zubrickas (2017) demonstrate that experimental subjects respond to incentives created by refund bonuses in predicted ways. For example, and counter to simple intuition, project funding rates decline if the refund bonus is set very high.…”

“…The main emphasis of our work is on the modification of the "all-or-nothing" crowdfunding mechanism that is proposed by Zubrickas (2014) and further explored by Cason and Zubrickas (2017). The modification is to introduce refund bonuses payable to contributors in the event of an unsuccessful fundraising campaign.…”

Rank‐order Competition in the Voluntary Provision of Impure Public Goods

“…Another advantage of our mechanism is that it does not prescribe fully excluding anyone from accessing the public good and only requires preferential or discriminatory access, which is often less costly and more likely to be acceptable. One important instance where we envision the mechanism to potentially be applied is crowdfunding of projects with a “public good flavor.” Cason and Zubrickas () argue that the recent large growth in crowdfunding revenue worldwide could have been driven by contributions coming from socially minded people and from the campaigner's network (see Kuppuswamy and Bayus ) and may slow down as this population is exhausted. As such, it will become increasingly more important to attract contributions from a broader range of donors, especially for community, charity, or art and creative projects, which can be done through implementing simple and effective mechanisms.…”