Some Simple Economics of Crowdfunding
In: Innovation Policy and the Economy, Volume 14
It is not surprising that the financing of early-stage creative projects and ventures is typically geographically localized since these types of funding decisions are usually predicated on personal relationships and due diligence requiring face-to-face interactions in response to high levels of risk, uncertainty, and information asymmetry. So, to economists, the recent rise of crowdfunding—raising capital from many people through an online platform—which offers little opportunity for careful due diligence and involves not only friends and family but also many strangers from near and far, is initially startling. On the eve of launching equity-based crowdfunding, a new market for early-stage finance in the United States, we provide a preliminary exploration of its underlying economics. We highlight the extent to which economic theory, in particular transaction costs, reputation, and market design, can explain the rise of nonequity crowdfunding and offer a framework for speculating on how equity-based crowdfunding may unfold. We conclude by articulating open questions related to how crowdfunding may affect social welfare and the rate and direction of innovation.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
12946.||Handle:|| RePEc:nbr:nberch:12946||Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Seth Freedman & Ginger Zhe Jin, 2008. "Do Social Networks Solve Information Problems for Peer-to-Peer Lending? Evidence from Prosper.com," Working Papers 08-43, NET Institute.
- Lee, Samuel & Persson, Petra, 2012. "Financing from Family and Friends," Working Paper Series 933, Research Institute of Industrial Economics.
- Ramana Nanda & Matthew Rhodes-Kropf, 2011.
"Investment Cycles and Startup Innovation,"
Harvard Business School Working Papers
12-032, Harvard Business School, revised Dec 2012.
- David H. Hsu, 2004. "What Do Entrepreneurs Pay for Venture Capital Affiliation?," Journal of Finance, American Finance Association, vol. 59(4), pages 1805-1844, 08.
- Qin Lei, 2011. "FINANCIAL VALUE OF REPUTATION: EVIDENCE FROM THE eBAY AUCTIONS OF GMAIL INVITATIONS," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 422-456, 09.
- Juanjuan Zhang & Peng Liu, 2012. "Rational Herding in Microloan Markets," Management Science, INFORMS, vol. 58(5), pages 892-912, May.
- Andrew Kato & Ginger Jin, 2004.
"Dividing online and offline: A case study,"
Natural Field Experiments
00276, The Field Experiments Website.
- Eric von Hippel, 1998. "Economics of Product Development by Users: The Impact of "Sticky" Local Information," Management Science, INFORMS, vol. 44(5), pages 629-644, May.
- Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-46, June.
- Shane Greenstein & Feng Zhu, 2012. "Is Wikipedia Biased?," American Economic Review, American Economic Association, vol. 102(3), pages 343-48, May.
- Ajay K. Agrawal & Christian Catalini & Avi Goldfarb, 2011. "The Geography of Crowdfunding," NBER Working Papers 16820, National Bureau of Economic Research, Inc.
- Daniel W. Elfenbein & Ray Fisman & Brian Mcmanus, 2012. "Charity as a Substitute for Reputation: Evidence from an Online Marketplace," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1441-1468.
- Catherine Tucker & Juanjuan Zhang, 2011. "How Does Popularity Information Affect Choices? A Field Experiment," Management Science, INFORMS, vol. 57(5), pages 828-842, May.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12946. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.