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Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions
Author(s) -
Agrawal Ajay,
Catalini Christian,
Goldfarb Avi
Publication year - 2015
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12093
Subject(s) - social connectedness , proxy (statistics) , investment (military) , the internet , equity crowdfunding , social relationship , business , economics , political science , world wide web , psychology , social psychology , computer science , finance , machine learning , politics , law , seed money
We examine a crowdfunding platform that connects artists with funders. Although the Internet reduces many distance‐related frictions, local and distant funders exhibit different funding patterns. Local funders appear less responsive to information about the cumulative funds raised by an artist. However, this distance effect appears to proxy for a social effect: it is largely explained by funders who likely have an offline social relationship with the artist (“friends and family”). Yet, this social effect does not persist past the first investment, suggesting that it may be driven by an activity like search but not monitoring. Thus, although the platform seems to diminish many distance‐sensitive costs, it does not eliminate all of them. These findings provide a deeper understanding of the abilities and limitations of online markets to facilitate transactions and convey information between buyers and sellers with varying degrees of social connectedness.