IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-01718793.html
   My bibliography  Save this paper

Crowdfunding with overenthusiastic investors : a global game model

Author

Listed:
  • Damien Besancenot

    (LIRAES - EA 4470 - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UPD5 - Université Paris Descartes - Paris 5)

  • Radu Vranceanu

    (ESSEC Business School and THEMA (UMR 8184) - ESSEC Business School - THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

Abstract

Crowdfunding platforms are providing funds to an increasing number of projects, among which many have a strong social/community impact. Under a all-or-nothing program, the success of the investment depends on the ability of a crowd of potential investors to put their funds into the project without an explicit coordination device. With heterogeneous information, such a problem can be analyzed as a typical global game. We assume that signals of at least some agents present a systematic positive bias, driven by positive emotions about projects with high social/community impact. The analysis reveals that if the number of such overenthusiastic persons is large enough, crowdfunding finance might support financially inefficient projects. We then analyze how a monopolistic platform optimally determines transaction fees and unveil the relationship between overenthusiasm and the profit of the platform.

Suggested Citation

  • Damien Besancenot & Radu Vranceanu, 2018. "Crowdfunding with overenthusiastic investors : a global game model," Working Papers hal-01718793, HAL.
    • Handle: RePEc:hal:wpaper:hal-01718793
    Note: View the original document on HAL open archive server: https://essec.hal.science/hal-01718793
    as

    Download full text from publisher

    File URL: https://essec.hal.science/hal-01718793/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-597, June.
    2. Hans Peter Grüner & Christoph Siemroth, 2019. "Crowdfunding, Efficiency, and Inequality," Journal of the European Economic Association, European Economic Association, vol. 17(5), pages 1393-1427.
    3. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    4. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    5. Roland Bénabou & Jean Tirole, 2005. "Self-Confidence and Personal Motivation," International Economic Association Series, in: Bina Agarwal & Alessandro Vercelli (ed.), Psychology, Rationality and Economic Behaviour, chapter 2, pages 19-57, Palgrave Macmillan.
    6. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
    7. Michael Grubb, 2015. "Behavioral Consumers in Industrial Organization: An Overview," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 247-258, November.
    8. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    9. Michael D. Grubb, 2015. "Behavioral Consumers in Industrial Organization," Boston College Working Papers in Economics 879, Boston College Department of Economics.
    10. Davis, Blakley C. & Hmieleski, Keith M. & Webb, Justin W. & Coombs, Joseph E., 2017. "Funders' positive affective reactions to entrepreneurs' crowdfunding pitches: The influence of perceived product creativity and entrepreneurial passion," Journal of Business Venturing, Elsevier, vol. 32(1), pages 90-106.
    11. José Jorge & Joana Rocha, 2015. "A Primer On Global Games Applied To Macroeconomics And Finance," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 869-886, December.
    12. Laura L. Veldkamp, 2011. "Information Choice in Macroeconomics and Finance," Economics Books, Princeton University Press, edition 1, number 9621.
    13. Gilles Chemla & Katrin Tinn, 2020. "Learning Through Crowdfunding," Management Science, INFORMS, vol. 66(5), pages 1783-1801, May.
    14. Roland Strausz, 2017. "A Theory of Crowdfunding: A Mechanism Design Approach with Demand Uncertainty and Moral Hazard," American Economic Review, American Economic Association, vol. 107(6), pages 1430-1476, June.
    15. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks," Econometrica, Econometric Society, vol. 75(3), pages 711-756, May.
    16. Stephen Morris & Hyun Song Shin, 2001. "Rethinking Multiple Equilibria in Macroeconomic Modeling," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 139-182, National Bureau of Economic Research, Inc.
    17. Mollick, Ethan, 2014. "The dynamics of crowdfunding: An exploratory study," Journal of Business Venturing, Elsevier, vol. 29(1), pages 1-16.
    18. Ajay Agrawal & Christian Catalini & Avi Goldfarb, 2014. "Some Simple Economics of Crowdfunding," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 63-97.
    19. Oana Peia & Radu Vranceanu, 2018. "The cost of capital in a model of financial intermediation with coordination frictions," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 266-285.
    20. Roland Bénabou & Jean Tirole, 2016. "Mindful Economics: The Production, Consumption, and Value of Beliefs," Journal of Economic Perspectives, American Economic Association, vol. 30(3), pages 141-164, Summer.
    21. Kévin André & Sylvain Bureau & Arthur Gautier & Olivier Rubel, 2017. "Beyond the Opposition Between Altruism and Self-interest: Reciprocal Giving in Reward-Based Crowdfunding," Journal of Business Ethics, Springer, vol. 146(2), pages 313-332, December.
    22. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    23. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    24. Strausz, Roland, 2017. "A Theory of Crowdfunding," Rationality and Competition Discussion Paper Series 2, CRC TRR 190 Rationality and Competition.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Takashi Ui, 2023. "Strategic Ambiguity in Global Games," Papers 2303.12263, arXiv.org, revised Nov 2024.
    2. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    3. Joyee Deb & Aniko Oery & Kevin R. Williams, 2018. "Aiming for the Goal: Contribution Dynamics of Crowdfunding," Cowles Foundation Discussion Papers 2149R, Cowles Foundation for Research in Economics, Yale University, revised Jan 2021.
    4. Takashi Ui, 2021. "Strategic Ambiguity in Global Games," Working Papers on Central Bank Communication 032, University of Tokyo, Graduate School of Economics.
    5. Boudreau, Kevin J. & Jeppesen, Lars Bo & Reichstein, Toke & Rullani, Francesco, 2021. "Crowdfunding as Donations to Entrepreneurial Firms," Research Policy, Elsevier, vol. 50(7).
    6. Bernardo Guimaraes & Caio Machado & Ana E. Pereira, 2020. "Dynamic coordination with timing frictions: Theory and applications," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 656-697, June.
    7. Toni Ahnert & Ali Kakhbod, 2017. "Information Choice and Amplification of Financial Crises," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 2130-2178.
    8. Ellman, Matthew & Hurkens, Sjaak, 2019. "Optimal crowdfunding design," Journal of Economic Theory, Elsevier, vol. 184(C).
    9. Szkup, Michal & Trevino, Isabel, 2015. "Information acquisition in global games of regime change," Journal of Economic Theory, Elsevier, vol. 160(C), pages 387-428.
    10. Sha Zhou & Tao Ma & Zhengchi Liu, 2021. "Crowdfunding as a screener for collective investment," Electronic Commerce Research, Springer, vol. 21(1), pages 195-221, March.
    11. Francisca Jiménez-Jiménez & Maria Virtudes Alba-Fernández & Cristina Martínez-Gómez, 2021. "Attracting the Right Crowd under Asymmetric Information: A Game Theory Application to Rewards-Based Crowdfunding," Mathematics, MDPI, vol. 9(21), pages 1-23, October.
    12. Szkup, Michal, 2020. "Multiplier effect and comparative statics in global games of regime change," Theoretical Economics, Econometric Society, vol. 15(2), May.
    13. Szkup, Michal & Trevino, Isabel, 2020. "Sentiments, strategic uncertainty, and information structures in coordination games," Games and Economic Behavior, Elsevier, vol. 124(C), pages 534-553.
    14. Yi, Ming, 2017. "Speculator-triggered crisis and interventions," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 135-146.
    15. Adena, Maja & Huck, Steffen, 2022. "Voluntary ‘donations’ versus reward-oriented ‘contributions’: two experiments on framing in funding mechanisms," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 25(5), pages 1399-1417.
    16. Iván Werning & George-Marios Angeletos, 2006. "Crises and Prices: Information Aggregation, Multiplicity, and Volatility," American Economic Review, American Economic Association, vol. 96(5), pages 1720-1736, December.
    17. Pagratis, Spyros, 2004. "Co-ordination failure and the role of banks in the resolution of financial distress," LSE Research Online Documents on Economics 24939, London School of Economics and Political Science, LSE Library.
    18. Naqvi, Hassan, 2015. "Banking crises and the lender of last resort: How crucial is the role of information?," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 20-29.
    19. BELLEFLAMME Paul, & LAMBERT Thomas, & SCHWIENBACHER Armin,, 2019. "Crowdfunding dynamics," LIDAM Discussion Papers CORE 2019014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Damien Besancenot & Radu Vranceanu, 2015. "Fear Of Novelty: A Model Of Scientific Discovery With Strategic Uncertainty," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1132-1139, April.

    More about this item

    Keywords

    Crowdfunding; Entrepreneurship; Global games; Overenthusiasm; Behavioral IO;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-01718793. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.