An Analysis of Incentive Structures in Collaborative Economy: An Application to Crowdfunding Platform

A crucial aspect to the functioning of the collaborative economy is the incentive structure that encourages participation. The objective of our research is to understand the impact of project reward structure (PRS), one form of incentives, on backers’ pledging decisions during projects’ funding period. To motivate the structural analysis, we first present a project-level reduced-form model to investigate the impact of the reward structure on project outcomes. From that, we find that dynamically modifying reward structures during project funding process has significantly positive impacts on influencing the project outcomes. We then develop a structural model to investigate how reward structures affect the reward-level decision making process by using a panel data. We found that reward levels that have been popular options till date or that have gained recent popularity are perceived to be more favorable if they are pushed lower down the menu of options, presumably by introducing weaker or less attractive options ahead of them in the menu. This implies that project creators do need to strategically design the PRS to attract more backers.