Learning through Crowdfunding
Chemla, Gilles; Tinn, Katrin (2018), Learning through Crowdfunding, W. P. Carey School of Business - 2017/18 Seminar series, 2018-02, Phoenix, United States
TypeCommunication / Conférence
Conference titleW. P. Carey School of Business - 2017/18 Seminar series
Conference countryUnited States
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Abstract (EN)We develop a model in which reward-based crowdfunding enables firms to obtain a reliable proof of concept early in their production cycle: they learn about total demand from a limited sample of target consumers preordering a new product. Learning from the crowdfunding sample creates a valuable real option because firms invest only if updated expectations about total demand are sufficiently high. This is particularly valuable for firms facing a high degree of uncertainty about consumer preferences, such as developers of innovative consumer products. Learning also enables firms to overcome moral hazard. The higher the funds raised, the lower the firms’ incentives to divert them, provided third-party platforms limit the sample size by restricting campaign length. Although the probability of campaign success decreases with sample size, the expected funds raised are maximized at an intermediate sample size. Our results are consistent with stylized facts and lead to new empirical implications.
Subjects / KeywordsReward-based crowdfunding; moral hazard; real options; uncertainty
JELD81 - Criteria for Decision-Making under Risk and Uncertainty
G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
L14 - Transactional Relationships; Contracts and Reputation; Networks
L26 - Entrepreneurship
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