A Theory of Crowdfunding: A Mechanism Design Approach with Demand Uncertainty and Moral Hazard

Roland Strausz

American Economic Review, 2017, vol. 107, issue 6, 1430-76

Abstract: Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard and private cost information threatens this benefit. Crowdfunding's after-markets enable consumers to actively implement deferred payments and thereby manage moral hazard. Popular crowdfunding platforms offer schemes that allow consumers to do so through conditional pledging behavior. Efficiency is sustainable only if expected returns exceed an agency cost associated with the entrepreneurial incentive problems. By reducing demand uncertainty, crowdfunding promotes welfare and complements traditional entrepreneurial financing, which focuses on controlling moral hazard.

JEL-codes: D21 D81 D82 D86 G32 L26 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20151700
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Citations: View citations in EconPapers (116)

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Related works:
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)
Working Paper: A Theory of Crowdfunding - a mechanism design approach with demand uncertainty and moral hazard (2015)
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