A Theory of Crowdfunding - a mechanism design approach with demand uncertainty and moral hazard

Roland Strausz

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: Crowdfunding provides the innovation that, before the investment, entrepreneurs contract with consumers. Under demand uncertainty, this improves a screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Focusing on the trade-off between value screening and moral hazard, the paper characterizes optimal mechanisms. Current 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. Crowdfunding blurs the distinction between finance and marketing, but complements rather than substitutes traditional entrepreneurial financing. As a screening tool for valuable projects, crowdfunding unambiguously promotes social welfare.

Keywords: Crowdfunding; finance; marketing; demand; uncertainty; moral hazard (search for similar items in EconPapers)
Date: 2015-11-14
New Economics Papers: this item is included in nep-cta, nep-ent, nep-mic and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: A Theory of Crowdfunding: A Mechanism Design Approach with Demand Uncertainty and Moral Hazard (2017)
Working Paper: A Theory of Crowdfunding - A Mechanism Design Approach with Demand Uncertainty and Moral Hazard (2016)
Working Paper: A Theory of Crowdfunding - a mechanism design approach with demand uncertainty and moral hazard (2016)
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