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The Geography of Crowdfunding

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Author Info

  • Ajay K. Agrawal
  • Christian Catalini
  • Avi Goldfarb

Abstract

Perhaps the most striking feature of "crowdfunding" is the broad geographic dispersion of investors in small, early-stage projects. This contrasts with existing theories that predict entrepreneurs and investors will be co-located due to distance-sensitive costs. We examine a crowdfunding setting that connects artist-entrepreneurs with investors over the internet for financing musical projects. The average distance between artists and investors is about 3,000 miles, suggesting a reduced role for spatial proximity. Still, distance does play a role. Within a single round of financing, local investors invest relatively early, and they appear less responsive to decisions by other investors. We show this geography effect is driven by investors who likely have a personal connection with the artist-entrepreneur ("family and friends"). Although the online platform seems to eliminate most distance-related economic frictions such as monitoring progress, providing input, and gathering information, it does not eliminate social-related frictions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16820.

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Date of creation: Feb 2011
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Handle: RePEc:nbr:nberwo:16820

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Cited by:
  1. BELLEFLAMME, Paul & LAMBERT, Thomas & SCHWIENBACHER, Armin, 2011. "Crowdfunding: tapping the right crowd," CORE Discussion Papers 2011032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Rubinton, Brian J, 2011. "Crowdfunding: disintermediated investment banking," MPRA Paper 31649, University Library of Munich, Germany.
  3. Wojciech Hardy, 2013. "How to perfectly discriminate in a crowd? A theoretical model of crowdfunding," Working Papers 2013-16, Faculty of Economic Sciences, University of Warsaw.
  4. Chris Forman & Avi Goldfarb & Shane Greenstein, 2013. "Information Technology and the Distribution of Inventive Activity," NBER Chapters, in: The Changing Frontier: Rethinking Science and Innovation Policy National Bureau of Economic Research, Inc.
  5. Jonathan Meer & Oren Rigbi, 2012. "Transactions Costs and Social Distance in Philanthropy: Evidence from a Field Experiment," Working Papers 1205, Ben-Gurion University of the Negev, Department of Economics.

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