Rationing and screening in crowdinvesting-markets

Oliver Mäschle and Wilfried Dalvai

No 142, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics

Abstract: The allocation of shares on crowd-investing-platforms is best described by the phrase "first come, first served". An entrepreneur who sells corporate equity to a "crowd" of investors on such a platform chooses a fixed investment target before the investment period begins. Once the aggregate investments equal the investment target the financing period ends immediately. We demonstrate that this preferential treatment of early investors is not optimal because it potentially excludes informational disadvantaged investors and entrepreneurs from the market. We recommend a market design that allows for some excessive demand. Such a design would increase the willingness of informational disadvantaged investors and entrepreneurs to participate in the market. At the same time, it would minimize a platforms screening costs and maximize its profits.

Keywords: crowd-investing; initial public offering; excessive demand; market microstructure; asymmetric information (search for similar items in EconPapers)
JEL-codes: D40 D45 G21 G32 L10 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ent and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:roswps:142

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