Optimal Crowdfunding Design

Matthew Ellman () and Sjaak Hurkens

No 14-21, Working Papers from NET Institute

Abstract: This paper investigates the optimal design of crowdfunding where crowdfunders are potential consumers with standard motivations and entrepreneurs are profit-maximizing agents. We characterize the typical crowdfunding mechanism where the entrepreneur commits to produce only if aggregate funding exceeds a defined threshold. We study how the entrepreneur uses this threshold, in conjunction with a minimal price, for rent extraction. Compared to a standard posted-price mechanism, total welfare may rise because the entrepreneur can adapt the production decision to demand conditions, but may fall because rent-seeking can worsen. Crowdfunding platforms can raise threshold credibility. So we also compare outcomes when the entrepreneur commits to a threshold against those where the entrepreneur simply decides on production after observing crowdfunder bids. Finally, we contrast crowdfunding with the optimal mechanism where production is contingent on a general function of all bids, rather than the simple sum of bids obliged by the aggregate threshold rule. Crowdfunding is very different, for instance, never committing to produce the good when aggregate bids fall short of the fixed cost (even absent credit constraints).

Keywords: Crowdfunding; mechanism design (search for similar items in EconPapers)
JEL-codes: C72 D42 L12 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-10
New Economics Papers: this item is included in nep-ent, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.netinst.org/Ellman_Hurkens_14-21.pdf (application/pdf)
no

Related works:
Journal Article: Optimal crowdfunding design (2019)
Working Paper: Optimal Crowdfunding Design (2016)
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:net:wpaper:1421

Access Statistics for this paper

More papers in Working Papers from NET Institute
Bibliographic data for series maintained by Nicholas Economides ().