Better to Give Than to Receive: Impact of Adding a Donation Scheme to Reward-Based Crowdfunding Campaigns

Motivated by the adoption of donation schemes at some leading reward-based crowdfunding platforms, we examine the effect of adding a donation scheme to reward based crowdfunding and explore its underlying mechanisms. This work also helps to fill the knowledge gap on the role of funding schemes. Leveraging an unannounced site change at a leading crowdfunding platform, we estimated the impact of introducing the donation scheme by developing and applying a novel two-step matching and difference in-differences technique for cohorted quasi-experimental settings. We find that the introduction of the donation scheme increased the success rate of reward campaigns by 19%. The increased success occurred mainly in reward campaigns with prosocial causes. Further analyses of underlying mechanisms reveal that the increased campaign success came mainly from campaigns that received donations. The added donation channel not only had a primary effect, as evidenced by a third of campaigns attracting donations, but also a secondary "crowd-in" effect on the reward channel, as shown by a positive impact of early donations on subsequent contributions through the reward channel, beyond the known effects of early contributions. Our findings suggest that, for reward campaigns with prosocial causes, the addition of a donation channel not only provides a better fit for some backers of reward campaigns, but also inspires others to be more willing to contribute through the reward channel.