October 24, 2018
Network Effects in Crowdfunding
Paul Belleflamme, UCLouvain CORE
We study the various network effects that are at work on crowdfunding platforms. From a theoretical perspective, we distinguish between network effects that relate to participation or to usage decisions. We use novel entrepreneur-backer data to identify their relative importance on project funding dynamics. We empirically show that backers decide on their usage of the platform based on intra-project activity – as documented by prior work – but also on inter-project activity. In a difference-in-differences research design, we estimate that inter-project network effects account for 2-3% in the increase of contributions that projects generate on a daily basis. Then we find that participation decisions create a positive feedback loop fueling the growth of the platform and explaining how positive inter-project network effects can arise. Our results represent the first attempt in the literature to unbundle the web of network effects on project funding dynamics and suggest that many existing results in the crowdfunding literature are driven by network effects.
Joint work with Thomas Lambert (Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management) and Armin Schwienbacher (SKEMA Business School).
The paper can be found here.
Please fill the doodle by Tuesday, Oct. 23 at noon if you plan to attend and mention whether you would like a sandwich.