Reward Scheme Design for Online Crowdfunding Projects

Abstract

In this paper, we investigate the optimal reward scheme design problem for online crowdfunding projects where project backers’ reward item selection is assumed to follow the multinomial logit choice model. Our model shows that project creator’s effective marginal profit from each reward item is the same at optimal backing prices, and the reward scheme design problem can be simplified to that of finding a fixed point of a single dimensional function. We also extend the basic model by considering crowdfunding participants’ behaviors such as backers’ altruistic motivation and heterogeneous beliefs in project’s success probability and project creator’s reward updating behavior. Finally, we conduct sensitivity analyses to examine the roles of key model parameters. This study provides theoretical and practical insights on reward design strategies for project creators in online crowdfunding market.