A Global Game Model of Medical Project Crowdfunding

Damien Besancenot and Radu Vranceanu

International Game Theory Review (IGTR), 2020, vol. 22, issue 03, 1-20

Abstract: This paper analyzes the strategic interaction between a crowdfunding platform specialized in medical projects and a set of potential investors. The problem is cast as a two-stage game. In the first stage, the platform chooses its participation fee and selects a project. In the second stage, investors decide whether to back the project or not. We consider a crowdfunding platform which runs all-or-nothing programs and transfers funds to the entrepreneur only if an investment target is reached. Moreover, we assume that some agents present a systematic positive bias driven by positive emotions about projects with high social impact, which is a major characteristic of medical projects. We frame the second-stage investor problem as a typical global game and solve it for the threshold equilibrium. The analysis reveals that crowdfunding finance might back financially inefficient projects, a result amplified by the existence of enthusiastic investors. We further show that the optimal fee charged by the platform is related to the frequency of overoptimistic agents, a result that might explain why platforms tend to over-emphasize the social role of their projects.

Keywords: Crowdfunding; medical projects; global games; overenthusiasm; behavioral IO (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S0219198919500166

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