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

The choice funding scheme is an important design dimension in crowdfunding for which platforms should not assume that they are restricted to the use of one funding scheme. In particular, we find that the addition of a donation scheme can increase the success rate of reward campaigns substantially, especially those with prosocial causes. In addition, the donation received is found to have a crowd-in effect on subsequent contributions. To get the most out of donation schemes, crowdfunding sites should provide features that help backers locate reward campaigns for prosocial causes, for example, by providing tags or search filters related to prosocial causes. Second, campaign owners should take steps to highlight the prosocial aspects of their crowdfunding campaign, for example, by revising campaign descriptions to include prosocial keywords/tags. Third, campaign owners should play a more active role in encouraging early donations to enjoy the crowd-in effect that could help their campaigns reach the targeted funding amount. Specifically, the owner’s direct social network is a potentially good source for soliciting these early donations. Relatedly, the campaign owners could benefit by spreading the word about the early donations they receive so as to generate a greater crowd-in effect at later phases of the crowdfunding process. 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. History: Michael Zhang, Senior Editor; Wonseok Oh, Associate Editor. Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2023.1224 .