The art of crowdfunding arts and innovation: the cultural economic perspective

Abstract

Crowdfunding is an innovation from the cultural sector that has found broad applications in other aspects of the economy. We document that cultural economics provides a refined structure to explain much of the crowdfunding phenomenon, which will be useful for any research on this topic. Based on central themes of cultural economics (including quality and demand uncertainty, socially interdependent demand formation, public good attributes, and intrinsic motivation to create), we extend on the current understanding in the crowdfunding literature regarding three fundamental questions: (1) under what circumstances is crowdfunding a superior alternative to traded means of financing innovative projects? (2) What types of crowdfunding are best suited for specific (cultural and creative) industries (CCI)? (3) What is the potential of crowdfunding for cultural and creative industries? Overall, we describe crowdfunding as a flexible tool for mitigating various, fundamental challenges in CCI and beyond. We also identify limitations of crowdfunding, which for now, severely restrict its application. Arguably, the main boon of crowdfunding for cultural economics is not so much that it makes markets (for cultural products) much more efficient and fosters growth. Instead, crowdfunding enables sophisticated empirical research on central topics of cultural economics, and a rich and diverse literature has begun lifting that treasure.

New forms of finance and funding in the cultural and creative industries. Introduction to the special issue

“…In comparison with more conventional modes of raising up-front capital, crowdfunding may overcome the separation of investors and users. Crowdfunding may be a superior method of financing the production of artistic goods and services that have public-good attributes (generally considered of less value by commercial investors) and to attract funders who are widely differentiated in terms of their willingness-to-pay (Handke & Dalla Chiesa, 2022). Hence, crowdfunding is believed to solve the problems that are typically associated with the private provision of public goods (Hudik & Chovanculiak, 2018).…”

“…New forms of intermediation are suggested. digital technologies (Elkins & Fry, 2021;Handke & Dalla Chiesa, 2022;Knott et al, 2022;van Haaften-Schick & Whitaker, 2022) and two articles offer a detailed treatment of investment in the CCI (Di Novo et al, 2022;Knott et al, 2022).…”

“…Crowdfunding is a particular case, and comes in various forms: pooled altruistic donations, crowd-sponsoring, pre-selling, or in the shape of a loan or investment with returns that are financial or shares, equity or the like (Röthler & Wenzlaff, 2011). Crowdfunding may overcome the separation of investors and users (Handke & Dalla Chiesa, 2022) owing to the 'emotional appeal' that projects might have on backers. This contrasts with ICOs, in which an emotional commitment to arts and culture is minimal, and investors speculate profitably on CCI successes.…”

“…Automated contactless platformized micropayments to buskers 1 3 (Elkins & Fry, 2021), as well as tokenized compensations for artists via smart contracts (van Haaften-Schick & Whitaker, 2022), deposit money on creators' bank accounts in unpredictable amounts and moments. The project financing generated through crowdfunding (Handke & Dalla Chiesa, 2022) and ICOs (Knott et al, 2022) is unlike earnings from patronage or copyright (passive income). Both systems aim at overcoming the high up-front costs of creation, and both require clear project campaigns and financial plans.…”

“…It includes two articles dealing with crowdfunding: one that conceptually relates the phenomenon of crowdfunding to important themes in cultural economics (Handke & Dalla Chiesa, 2022), and one that examines the determinants of a very specific form of crowdfunding (remote donations via a platform) in the case of street performers, based on secondary data generated by the platform (Elkins & Fry, 2021). Additionally, the Issue comprises two articles that address funding by means of cryptocurrency, highlighting the functionalities of initial coin offerings (Knott et al, 2022) and NFTs and contracts (van Haaften-Schick & Whitaker, 2022).…”