
Abstract
Crowdfunding provides the innovation that, before the investment, entrepreneurs contract with consumers. Under demand uncertainty, this improves a screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Focusing on the trade-off between value screening and moral hazard, the paper characterizes optimal mechanisms. Current crowdfunding schemes reflect their salient features. Efficiency is sustainable only if returns exceed investment costs by a margin reflecting the degree of moral hazard. Constrained efficient mechanisms exhibit underinvestment. Crowdfunding blurs the distinction between finance and marketing, but complements rather than substitutes traditional entrepreneurial financing. As a screening tool for valuable projects, crowdfunding unambiguously promotes social welfare.
Item Type: | Paper |
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Keywords: | Crowdfunding, finance, marketing, demand, uncertainty, moral hazard |
Faculties: | Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A7 - Auktionen, Anreizprobleme und Wettbewerb |
Subjects: | 300 Social sciences > 330 Economics |
URN: | urn:nbn:de:bvb:19-epub-25946-5 |
Language: | English |
Item ID: | 25946 |
Date Deposited: | 17. Nov 2015, 07:34 |
Last Modified: | 04. Nov 2020, 13:07 |