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

Sjaak Hurkens and Matthew Ellman ()

No 1012, Working Papers from Barcelona School of Economics

Abstract: Strausz (2017) claims that crowdfunding implements the optimal mechanism design outcome in an environment with entrepreneurial moral hazard and private cost information. Unfortunately, his analysis, solution and claim depend critically on imposing an untenable condition (29) that he had explicitly discarded from his weak feasibility concept.1 This condition is essentially equivalent to ex post participation. We explain why it is inconsistent to assume consumers can opt out after learning the entrepreneur's cost structure in a model of fraud. We then study weak feasibility without the corresponding ex post participation constraint. We provide a simple example of a crowdfunding design that raises profit and welfare by tolerating some fraud risk. This shows how cross-subsidizing between cost states relaxes the most restrictive moral hazard constraints and generates better outcomes. We then characterize the optimal mechanism in the case of one consumer and two cost states. In general, this must hide information, including prices, from consumers. So crowdfunding cannot implement these optima.

Keywords: private information; moral hazard; mechanism design; crowdfunding (search for similar items in EconPapers)
JEL-codes: C72 D42 D81 D82 D86 L12 L26 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-des and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2018/01/1012-file.pdf (application/pdf)

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:bge:wpaper:1012

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().