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

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.