When Reward Meets Donation: A Paradoxical Dilemma

Abstract

<p>Reward-based crowdfunding platforms are increasingly incorporating a donation option, which enables backers to contribute money without redeeming any rewards. While this option has been touted as a novel fundraising channel, our study highlights the negative externalities it can generate, which ultimately leads to a decline in total raised funds. We identify two mechanisms that contribute to the adverse effect. Firstly, the bystander effect, wherein prior donations diminish prospective backers’ willingness to support the campaign, leading them to either opt out of reward purchases or decrease their contribution amounts. Secondly, the social conformity effect, whereby prior donations shape backers’ perceptions of social norms and consequently decrease their support levels. Our study makes substantial contributions to both the literature and practice.<br></p>