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Crowdfunding, demand uncertainty, and moral hazard - a mechanism design approach

Roland Strausz

SFB 649 Discussion Papers from Humboldt University, Collaborative Research Center 649

Abstract: Crowdfunding challenges the traditional separation between nance and marketing. It creates economic value by reducing demand uncertainty, which enables a better screening of positive NPV projects. Entrepreneurial moral hazard threatens this e ect. Using mechanism design, mechanisms are characterized that induce ecient screening, while preventing moral hazard. \All-ornothing" reward-crowdfunding platforms re ect salient features of these mechanisms. Eciency is sustainable only if expected gross returns exceed twice expected investment costs. Constrained ecient mechanisms exhibit underinvestment. With limited consumer reach, crowdfunders become actual investors. Crowdfunding complements rather than substitutes traditional entrepreneurial nancing, because each nancing mode displays a di erent strength.

Keywords: Crowdfunding; nance; marketing; demand uncertainty; moral hazard (search for similar items in EconPapers)
JEL-codes: D82 G32 L11 M31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-07
New Economics Papers: this item is included in nep-cta, nep-ent, nep-mic and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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