A Theory of Crowdfunding
Roland Strausz ()
No 2, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition
Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard and private cost information threatens this benefit. Crowdfunding\'s after-markets enable consumers to actively implement deferred payments and thereby manage moral hazard. Popular crowdfunding platforms offer schemes that allow consumers to do so through conditional pledging behavior. Efficiency is sustainable only if expected returns exceed an agency cost associated with the entrepreneurial incentive problems. By reducing demand uncertainty, crowdfunding promotes welfare and complements traditional entrepreneurial financing, which focuses on controlling moral hazard.
Keywords: Crowdfunding; entrepreneurship; moral hazard; demand uncertainty (search for similar items in EconPapers)
JEL-codes: D82 G32 L11 M31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-ent, nep-ino, nep-mic and nep-ppm
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