“Modeling Consumer Crowdfunding Behaviors Under Effort‐Based Incentives” by Ms. Xiaoqian Yu
Ms. Xiaoqian Yu
PhD Candidate in Marketing
Marshall School of Business
University of Southern California
Effort‐based incentives, wherein consumers can complete tasks to earn rewards, have now emerged as a popular promotional tool in marketing. Effort‐based incentives possess two unique features. First, since gettng a reward is not effortless, consumers face a decision of how many incentive tasks to participate to earn reward. Second, effort‐based incentives allow individuals to turn effort into a monetary reward, and such reward can then immediately relax an individual participant’s budget and consequently influence consumer behavior (e.g., contribution in our context). We propose a model to investigate how effort‐based incentives affect individual contribution behavior in the context of journalism crowdfunding. In particular, we develop a unified utility maximization framework to simultaneously model two interdependent consumer decisions in the crowdfunding context with effort‐based incentives: contribution decision (i.e. how much to contribute) and incentive participation decision (i.e. how many incentives tasks to participate in). We also incorporate dynamics by modeling consumer reward accumulation and budget evolvement over time. Since incentive participation directly affects budget, the optimal contribution and incentive participation amount involve a complex simultaneity. We adopt a two‐step estimation approach to cope with the simultaneity issue, and changes‐in‐variable method to obtain the likelihood and to address the implicitness issue. We use the Bayesian method to make model inference so that we can conveniently account for the multiple‐constraint requirement and unobserved heterogeneity. Using data from a pioneering crowdfunding platform for journalism, we find that effort‐based incentives tend to increase contribution amount for those individuals with smaller baseline budget, and for those with higher baseline budget, incentives tend to increase their contribution amount if they have lower contribution preference. Our counterfactual analysis leads to important managerial implications on effective use of effort‐based incentives.