Crowdfunding: A Guide to Raising Capital on the Internet

CHAPTER 3

A Statistical View of Crowdfunding

Carl Esposti

Massolution

As pointed out in Chapter 1, crowdfunding as a tool for capital formation is by no means a new discovery. The willingness within a population to get behind commonly beneficial ventures is and has always been an integral, if not puzzling, chapter of societal evolution—integral because we are reminded of how powerful our joint effort and support can be; puzzling because the provision of goods and services that are commonly beneficial (such as public goods) often entail what economists would call a “free-rider problem.”

The free-rider problem emerges when individuals can benefit without necessarily contributing. As individuals, we are faced with the option to free-ride on a daily basis; this also happens when we are surfing crowdfunding campaigns. Campaigns asking for donations to solve a common problem without offering anything in return perfectly illustrate an area where free-riding should make success impossible. When we are faced with the option of letting someone else take responsibility for solving common problems, one would expect that no one would take that responsibility. And yet these ventures are the building blocks of the crowdfunding industry!

What this tells us is that there are aspects of human behavior that have not been captured completely by the traditional economic view that we are consistently acting in our own self-interest and everything we do can in one way or another be understood as a purely ...