Budget Disclosure in Crowdfunding: Information Asymmetry and Cost Transparency

Problem definition: This paper investigates how a crowdfunding campaign’s voluntary disclosure of sensitive cost information affects its funding performance on Kickstarter—a mainstream, primarily reward-based crowdfunding platform. Instead of enhancing a campaign’s marketing traits, project budget as a novel information-provision tool reminds the crowd of the behind-the-scenes operations for developing and executing a project. This resembles the radical practice of cost transparency recently observed in the retail industry and studied experimentally in the literature. We also separate the disclosure effect on reward seeking versus altruistic pledges and examine how it varies with the structure of the cost items (fixed versus variable costs). Methodology/results: Our data collection follows Kickstarter’s rollout of the Project Budget tool in 2019. The project-level raw data are preprocessed via coarsened exact matching to match projects with and without budgets. We show that the main channel through which budget provision improves funding performance is via attracting additional funding, not by cannibalizing competing projects. Because of the voluntary nature of budget provision, we address the resulting endogeneity issue using peer average-style instruments. Budget provision on average increases funding performance by over 100%, which is more effective than many information-provision tools studied. Interestingly, this funding improvement comes from an increased number of backers (width), not from a higher pledge per backer (depth), and from a considerably higher number of altruistic pledges, not from more reward-seeking pledges. Further, a higher fixed-cost (over total cost) ratio, which is indicative of a higher profit margin, significantly reduces the benefit but does not make disclosure backfire. Managerial implications: Showing the costs to customers can be highly effective in business settings where trust between stakeholders is critical, which implies a promising generalization to donation-based crowdfunding. Our results can also be used to guide a sequential rollout of the Project Budget feature across campaign categories and promote adoption rates. Funding: X. Tong was supported by funding from the Department of Operations and the Research School of the Faculty of Economics and Business at the University of Groningen [Projects 147215070 and 147120310]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0374 .