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 ().