EconPapers    
Economics at your fingertips  
 

Fraud tolerance in optimal crowdfunding

Matthew Ellman () and Sjaak Hurkens

Economics Letters, 2019, vol. 181, issue C, 11-16

Abstract: Reward-based crowdfunding enables credit-constrained entrepreneurs to raise money to develop and create innovative products. Crowdfunders’ low monitoring incentives open the door to fraud. In practice, fraud is surprisingly rare. Strausz (2017) proves that crowdfunding implements the optimal ex post individually rational mechanism design outcome in an environment with entrepreneurial moral hazard and private cost information. However,ex post individual rationality precludes all crowdfunding unless fraud can be prevented with certainty. Actual crowdfunding tolerates some fraud. We show this (i) generates strictly higher profits and welfare, but (ii) cannot implement the optimal ex interim individually rational outcome.

Keywords: Crowdfunding; Mechanism design; Moral hazard; Private information (search for similar items in EconPapers)
JEL-codes: C72 D42 D82 D86 L12 L26 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176519301375
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:181:y:2019:i:c:p:11-16

DOI: 10.1016/j.econlet.2019.04.015

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-31
Handle: RePEc:eee:ecolet:v:181:y:2019:i:c:p:11-16