Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/122017
Authors: 
Strausz, Roland
Year of Publication: 
2015
Series/Report no.: 
SFB 649 Discussion Paper 2015-036
Abstract: 
Crowdfunding challenges the traditional separation between finance and marketing. It creates economic value by reducing demand uncertainty, which enables a better screening of positive NPV projects. Entrepreneurial moral hazard threatens this effect. Using mechanism design, mechanisms are characterized that induce efficient screening, while preventing moral hazard. "All-or-nothing" reward-crowdfunding platforms reflect salient features of these mechanisms. Efficiency is sustainable only if expected gross returns exceed twice expected investment costs. Constrained efficient mechanisms exhibit underinvestment. With limited consumer reach, crowdfunders become actual investors. Crowdfunding complements rather than substitutes traditional entrepreneurial financing, because each financing mode displays a different strength.
Subjects: 
crowdfunding
finance
marketing
demand uncertainty
moral hazard
JEL: 
D82
G32
L11
M31
Document Type: 
Working Paper

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