Regional social capital and moral hazard in crowdfunding

We find a strong positive relationship between entrepreneurs' home-county social capital and their crowdfunding performance on Kickstarter. We exploit a quasi-experiment based on a Kickstarter rule change that strengthens entrepreneurs' obligation to provide backers with the promised rewards and find a significant reduction in the effect of social capital on campaign outcomes. In addition, the results are stronger for campaigns that are more vulnerable to moral hazard, as proxied by entrepreneur, regional, and campaign characteristics, and in times of poor market environment. Overall, our findings suggest that crowdfunding campaigns benefit from social capital via the alleviation of moral hazard concerns.