Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/157304
Authors: 
Strausz, Roland
Year of Publication: 
2015
Series/Report no.: 
SFB/TR 15 Discussion Paper 527
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.
Subjects: 
Crowdfunding
finance
marketing
demand uncertainty
moral hazard
JEL: 
K12
K42
C91
D64
Document Type: 
Working Paper

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