The Economics of Fundraising on the Internet
Description:... This thesis is an economic analysis of online fundraising platforms, commonly referred to as “crowdfunding.” It studies two distinct topics: how different types of funding mechanisms affect donors’ and fundraisers’ incentives, and how government spending affects individuals’ decisions to use crowdfunding. In the first chapter, I develop a new way of empirically modeling donors’ preferences for making contributions to fundraising campaigns under two alternative funding mechanisms. In the first mechanism (All-or-Nothing), fundraisers keep donations they raise only if the amount meets or exceeds their funding target. Under the second mechanism (Keep-it-All), fundraisers keep donations they raise regardless of whether the amount meets or exceeds their funding target. I estimate my model on a unique dataset that includes over a quarter-million fundraising campaigns collected directly from the two largest crowdfunding platforms. My main findings are as follows. First, I find that fundraisers with higher quality campaigns choose the All-or-Nothing platform. Simulating how donors would behave had fundraisers selected the alternative platform, I next find donors are more likely to make donations if fundraisers select the All-or-Nothing mechanism. However, the increase in donations only converts into higher revenue for the highest quality campaigns. Hence, sorting across the two mechanisms can be explained in part by fundraisers selecting the mechanism that maximizes expected funding. In the second chapter, I study whether increases in per-pupil spending reduces public school teachers’ use of the popular crowdfunding platform DonorsChoose.com. A key issue in studying the nonprofit sector is understanding the extent to which public spending crowds-out private donations. Recent studies have found that an important contributor to crowd-out is the reduction of fundraising expenditures by nonprofit firms responding to receiving government funding. In this chapter, I focus on whether individuals behave in an analogous manner. I find that a dollar increase in per-pupil expenditures reduce teachers’ fundraising targets by 27 cents. I then decompose this effect into intensive and extensive margins, and find that nearly two-thirds is attributed to the extensive margin. I also disaggregate per-pupil spending into its various components to isolate the primary channels that drive these results.
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