Learning Through Crowdfunding

Abstract

We develop a model where reward-based crowdfunding enables …rms to obtain a reliable proof of concept early in their production cycle. The information gathered from a subsample of backers through a …xed length pre-selling campaign enables …rms to update their beliefs about the preferences of all future consumers. This creates a valuable real option as …rms invest only if updated demand is high. Further, such updating mitigates moral hazard: the higher the funds raised, the lower the …rms' incentives to divert them. Our results are consistent with stylized facts and provide new testable implications.JEL codes: D80, G30, L14, L26, O30

Interconnection Between Information Mechanism on Crowdfunding Platforms and Product Launch Decision on the Market: Case Study of ASEAN-Five Countries

“…Fundraising carried out by backers is one of the most important elements in crowdfunding activities, this condition shows that backers have actively contributed to creating and developing a crowdfunding project (Belleflamme et al, 2010). Backers provide an opportunity for initiators to study consumer preferences, which then benefits the initiator in creating project success in crowdfunding (Chemla and Tinn, 2017).…”

“…Usually the generated information is related to market demand valuation, society's contribution to the product, individual appreciation of the product and product value from consumer's perspective compared to initiator's perspective (Viotto, 2018). This will help the project initiator decide on of the product's launch (Chemla and Tinn, 2017). Some advantages are gained by the project initiator from the information obtained through the project campaign on crowdfunding platform regarding: (1) the number of backers who contribute to the success of the crowdfunding project; (2) the amount contributed by each backer; (3) the crowdfunding project appreciation given by the backers; (4) and the amount raised by backers' contribution to the crowdfunding project compared to the crowdfunding target chosen by the project initiator (Viotto, 2018).…”

Crowdfunding, Efficiency, and Inequality

“…Asset owners do not understand what those people who do not have wealth think about the world" (Financial Times, 2016). mechanisms (Chang, 2015;Chemla and Tinn, 2016;Ellman and Hurkens, 2015;Schwienbacher, 2015;Strausz, 2016). A pre-order crowdfunding scheme operates like a set of forward transactions that are all made conditional on the aggregate volume of purchases.…”

“…Ellman and Hurkens (2015) study how crowdfunding can be used for market testing. Chang (2015), Chemla and Tinn (2016), and Strausz (2016) focus on the trade off between information gathering aggregation and incentives when the entrepreneur can embezzle the funds. Belleflamme et al (2014) investigate whether an entrepreneur should rather use pre-order or equity-based crowdfunding.…”

Crowdfunding with Overenthusiastic Investors: A Global Game Model

“…Agrawal et al (2014) provide a survey of the early literature, and emphasize the role of crowdfunding platforms in signaling quality, feedback transmission and trust facilitation. Several recent papers study crowdfunding as a mechanism design problem and reveal when this type of investment might dominate traditional investment mechanisms (inter alia, Grunner et al, 2015;Ellemenas and Hurkens, 2015;Chemla and Tinn, 2016;Chang, 2016;Strausz, 2017). Belle ‡ame et al ( 2014) set up a two-stage model of crowdfunding with pre-orders, assuming that investors would also demand the product, and study the optimal reward scheme.…”