Collective Action and the Financing of Innovation: Evidence from Crowdfunding

Society has a vital interest in encouraging and rewarding innovation and creativity. Neoclassical economic theory suggests that private investors support the funding of innovation in exchange for the opportunity to appropriate financial returns. However, when expected returns are insufficient to motivate investment, market failures may occur and innovation can languish. The recent success of crowdfunding, whereby individuals act collectively to support innovative and entrepreneurial activities despite the absence of conventional incentives, suggests an alternate model for addressing this critical market failure. Given the importance and urgency of this problem, this dissertation explores the following question: Under what conditions and through what mechanisms do voluntary contributors freely support private enterprise in the absence of financial incentives? Drawing from theories about collective action and the provision of public goods, this thesis advances a hybrid "private investment-collective action" model for the financing of innovation. Second, it integrates the economic and organizational literature with in-depth fieldwork from fifteen crowdfunded ventures to offer a more grounded, socially embedded explanation about the private-collective model in the context of crowdfunding. Finally, because qualitative research may overstate theoretical mechanisms, this work complements the field interviews with a quantitative study of 71,304 crowdfunding campaigns. Furthermore, to establish the internal validity of the ii main results, I supplement the analysis with a detailed review of 1,316 technology-based crowdfunded projects from within the main dataset; and, to assess the external validity of the findings I conduct a replication of the main analysis with data from an additional 22,548 crowdfunding campaigns collected from an alternative source. This dissertation advances our academic understanding of the social influences on the decision-making behaviors of collective actors in the context of innovation and entrepreneurial finance. The results may be of practical interest to policymakers, educators, investors, entrepreneurs, and innovators.

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