Inducing contributions with refund bonuses

Economics

Speaker:Robertas Zubrickas, University of Bath
Date: Wednesday 21 January 2015
Time: 14.00 - 15.30
Location: Bateman Lecture Theatre, Building One

Further details

In fundraising campaigns for public projects, Internet crowdfunding platforms employ the simple provision point mechanism with refunds in spite of its weak implementation properties. Indeed, this mechanism is fraught with a multiplicity of equilibria, both efficient and inefficient. This paper experimentally studies the refinement proposed by Zubrickas (2013, 2014) that improves the properties of the provision point mechanism up to strict implementation and, at the same time, retains its simple structure. The refinement is to give contributors a refund bonus as a percentage of their (fully refunded) contribution in the event of insufficient contributions. Yet, refund bonuses are never distributed in equilibrium as either quest for refund bonuses or preference for the project will induce sufficient contributions. In laboratory experiments, we examine various equilibrium properties of the refinement related to allocative and distributive efficiency and information structure. We show that equilibrium predictions find empirical support, but the closest match is obtained when the model is refined with bounded rationality.