Many nonprofits are turning to online crowdfunding platforms to appeal to potential donors; however, a recent study has shown that when the government signals attention toward a cause, giving levels often drop and become more localized. Gies College of Business researchers Ari Garimella and Ram Subramanyam along with recent Gies doctoral graduate, Anqi Wu from Florida International University, detail those effects in the results of their latest study, “When Top-Down Meets Bottom-Up: Legislative Signals and Online Crowdfunding,” published in Information Systems Research.

“While there is a substantial body of research on the drivers behind crowdfunding success, there isn’t much work on the effects of external events, such as legislative policies, on online charitable behavior,” Garimella said.

“At the same time, there has always been an interest in information systems literature on what differentiates these small fractions of people who ask for and actually get their contributions and whether external events cause charitable givers to hold back,” added Subramanyam. 

The study looked at charitable giving to public schools through the platform Donors Choose before and after the landmark Every Student Succeeds Act (ESSA) passed in 2015. ESSA, a bipartisan effort, diverted federal authority, accountability, and financial control to state and local governments to govern their schools.

By gathering exhaustive geographic and media data on published ESSA-related articles and further cataloging Google Trends search data related to this topic, the researchers were able to capture public knowledge about the legislation (both sought out and pushed to them) and how it shaped their contribution behavior on the digital platform.

“Digital platforms are usually thought to make the world flatter by identifying causes for potential donors even outside their local region,” Garimella said. “However, local giving continues to be higher on online platforms than non-local donations. What we found in our study is that as during legislative action, online donations turn even more hyperlocal. This has important implications for the equitable distribution of resources.” 

“Public education is the backbone of how many economies grow,” Subramanyam said. “In theory, inequities should be leveled and shortages of resources to most schools should be addressed when policies are made, but unfortunately, inequity and scarcity of resources continue to exist, and rarely do we see such nominal forms of funding change the status of schools. It is quite clear that these platforms are critical because what the federal government contributes is just a small portion of what the schools actually need.”

The Gies researchers hope their results can encourage platforms to still convince donors of the continued need through nudges, which might include texts or emails.

“The biggest problem of any digital platform is matching,” Garimella said. “For instance, Uber connects drivers to riders and GrubHub links restaurants to customers. In the same light, crowdfunding platforms match fund seekers to givers. As the matching process becomes more dynamic, we hope these platforms can provide corrective nudges that connect donors to projects outside their community.”

“This is a very complex problem to solve, but we believe that in the world of generative AI and increasingly sophisticated machine learning models, we have the ability to algorithmically improve the matching between givers and recipients,” Subramanyam added.

While their test case centers on education, Garimella and Subramanyam believe that the results could apply to other areas.

“That is one more reason we get excited about this research,” Subramanyam said. “If you change the context of education to health care, for instance, we can picture a similar behavior of participants in response to external legislation.”