Financing micro-entrepreneurship in online crowdfunding markets: What drives local bias?

This paper investigates local bias in online crowdfunding and examines the channels through which it manifests. Using rich data from a major Chinese reward-based crowdfunding platform, we document strong local bias among funders, particularly for projects whose evaluation relies on local knowledge. We develop and estimate a structural model to quantify the roles of preference and information channels in driving this bias, finding that informational frictions account for roughly two-thirds of the effect. A counterfactual policy that removes project location information increases contributions from different-province funders and benefits projects originating in underdeveloped regions. Our findings highlight the role of platform design in shaping investor behavior and expanding funding access for micro-entrepreneurs.