Self-Donations and Charitable Contributions in Online Crowdfunding: An Empirical Analysis

Abstract

Many charitable projects have started using online crowdfunding platforms to raise donations. The rise of these platforms as fundraising vehicles has been partially driven by easy access to a large pool of potential donors without the significant marketing costs that commonly accompany traditional fundraising. However, such a low cost of entry also results in a significant “crowding” of projects, making it difficult for donors to decide which projects to donate to. Thus, a charitable project encounters a fundamental marketing challenge of standing out from other projects when conventional techniques like advertising and promotion are limited. In this article, the authors posit that a project can credibly signal its quality via a strategy of “self-donation,” whereby the project steward donates to their own project. The empirical setting is an online education crowdfunding platform. By examining millions of donations, the authors find that self-donations improve the donation pace, contributed amount, and funding success. The findings show that the self-donation strategy works only when a self-donation is visible to potential donors and is especially effective at the early stage of the funding cycle or when project stewards are inexperienced, where the projects face significant uncertainty. The authors find evidence for self-donation as a quality signal through various observable proxies like impact letters to donors and corporate matching. Overall, the findings are consistent with a signaling mechanism that allows the separation of high-quality projects from lower-quality ones.