Optimal Crowdfunding Design

Sjaak Hurkens and Matthew Ellman (matthew.ellman@iae.csic.es)

No 871, Working Papers from Barcelona School of Economics

Abstract: We characterize optimal reward-based crowdfunding where production is contingent on an aggregate funding threshold. Crowdfunding adapts project-implementation to demand (market-testing) and its multiple prices enhance rent-extraction via pivotality, even for large crowds, indeed for arbitrarily large if tastes are correlated. Adaptation raises welfare and rent-extraction can enhance adaptation, but sometimes distorts production and lowers welfare. Threshold commitment, central to All-Or-Nothing platforms, raises profits but can lower consumer welfare. When new buyers arrive ex-post, crowdfunding's market-test complements traditional finance and informs subsequent pricing. We prove that crowdfunding is a general optimal mechanism in our baseline.

Keywords: mechanism design; entrepreneurial finance; crowdfunding; market-testing; adaptation; rent-extraction (search for similar items in EconPapers)
JEL-codes: C72 D42 L12 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-ent, nep-gth, nep-mic and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Optimal crowdfunding design (2019)
Working Paper: Optimal Crowdfunding Design (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:871

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