Reward Scheme Design for Online Crowdfunding Projects

49 Pages Posted: 6 Oct 2017

See all articles by Shengsheng Xiao

Shengsheng Xiao

Shanghai University of Finance and Economics

Tongxin Zhou

Arizona State University (ASU) - Department of Information Systems

Yong Tan

University of Washington - Michael G. Foster School of Business

Date Written: October 4, 2017

Abstract

In this paper, we investigate the optimal reward scheme design problem for online crowdfunding projects where project backers’ reward item selection is assumed to follow the multinomial logit choice model. Our model shows that project creator’s effective marginal profit from each reward item is the same at optimal backing prices, and the reward scheme design problem can be simplified to that of finding a fixed point of a single dimensional function. We also extend the basic model by considering crowdfunding participants’ behaviors such as backers’ altruistic motivation and heterogeneous beliefs in project’s success probability and project creator’s reward updating behavior. Finally, we conduct sensitivity analyses to examine the roles of key model parameters. This study provides theoretical and practical insights on reward design strategies for project creators in online crowdfunding market.

Keywords: Crowdfunding, Reward Scheme Design, Multinomial Logit Model, Product Line Design

Suggested Citation

Xiao, Shengsheng and Zhou, Tongxin and Tan, Yong, Reward Scheme Design for Online Crowdfunding Projects (October 4, 2017). Available at SSRN: https://ssrn.com/abstract=3048158 or http://dx.doi.org/10.2139/ssrn.3048158

Shengsheng Xiao

Shanghai University of Finance and Economics ( email )

No. 100 Wudong Road
Shanghai, Shanghai 200433
China

Tongxin Zhou (Contact Author)

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

Yong Tan

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States

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