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Some Simple Economics of Crowdfunding
- Source :
- Catalini
- Publication Year :
- 2014
- Publisher :
- University of Chicago Press, 2014.
-
Abstract
- 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.
- Subjects :
- Transaction cost
Economics and Econometrics
jel:Z11
Financial economics
Strategy and Management
media_common.quotation_subject
jel:D82
Equity (finance)
jel:G24
jel:G21
Due diligence
jel:L86
Information asymmetry
Seed money
jel:L26
Management of Technology and Innovation
Economics
jel:R12
Equity crowdfunding
Marketing
Reputation
media_common
Subjects
Details
- ISSN :
- 15372618 and 15313468
- Volume :
- 14
- Database :
- OpenAIRE
- Journal :
- Innovation Policy and the Economy
- Accession number :
- edsair.doi.dedup.....808040c00434cf21517727f96d60e20b