Referral-Embedded Provision Point Mechanisms for Crowdfunding of Public Projects

Abstract

Civic Crowdfunding is emerging as a popular means to mobilize funding from citizens for public projects. A popular mechanism deployed on civic crowdfunding platforms is a provision point mechanism, wherein, the total contributions must reach a predetermined threshold in order for the project to be provisioned (undertaken). Such a mechanism may have multiple equilibria; unfortunately, in many of these equilibria, the project is not funded even if it is highly valued among the agents. Recent work has proposed mechanisms with refund bonuses where the project gets funded in equilibrium if its net value is higher than a threshold among the agents who are aware of the crowdfunding effort. In this paper, we formalize the notion of social desirability of a public project and propose mechanisms which use the idea of referrals to expand the pool of participants and achieve an equilibrium in which the project gets funded if its net value exceeds a threshold among the entire agent population. We call this new class of mechanisms Referral-Embedded Provision Point Mechanisms (REPPM). We specifically propose two variants of REPPM and both these mechanisms have the remarkable property that, at equilibrium, referral bonuses are offered but there is no need for actual payment of these bonuses. We establish that any given agent's equilibrium strategy is to refer other agents and to contribute in proportion to the agent's true value for the project. By referring others to contribute, an agent can, in fact, reduce his equilibrium contribution. In our view, the proposed mechanisms will lead to an increase in the number of projects that are funded on civic crowdfunding platforms.