Strausz, Roland (Humboldt University Berlin)
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.
Crowdfunding; entrepreneurship; moral hazard; demand uncertainty
D82; G32; L11; M31
A Mechanism Design Approach with Demand Uncertainty and Moral Hazard