A Theory of Crowdfunding - A Mechanism Design Approach with Demand Uncertainty and Moral Hazard
By Roland Strausz. Social Science Research Network, 2017
334 citations recorded by the source corpus.
Crowdfunding provides innovation in that it enables entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Studying the subsequent trade-off between screening and moral hazard, the paper characterizes optimal mechanisms. Popular all-or-nothing reward-crowdfunding schemes reflect their salient features. Efficiency is sustainable only if returns exceed investment costs by a margin reflecting the degree of moral hazard. Constrained efficient mechanisms exhibit underinvestment. As a screening tool for valuable projects, crowdfunding promotes social welfare. Crowdfunding complements rather than substitutes traditional entrepreneurial financing.
Subfields: Economics and Econometrics, Information Systems, Management Information Systems
View Paper: https://www.semanticscholar.org/paper/a036d09e32d926463da2ef1d73777fffb479d152
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In Economics and Econometrics
In Information Systems
In Management Information Systems
Citations in the corpus
- Crowdfunding success: a systematic literature review 2010–2017 (2020, background): “Overall, CF does not yet have an accepted theory of its own, while initial efforts in this direction have been made (e.g. Kshetri, 2015, Strausz, 2017).”