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A Theory of Crowdfunding

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  • Strausz, Roland

    (Humboldt University Berlin)

Abstract

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.

Suggested Citation

  • Strausz, Roland, 2017. "A Theory of Crowdfunding," Rationality and Competition Discussion Paper Series 2, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:2
    as

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    References listed on IDEAS

    as
    1. 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.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Crowdfunding; entrepreneurship; moral hazard; demand uncertainty;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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