Some Simple Economics of Crowdfunding
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...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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University of Chicago Press
2017
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| Online Access: | http://hdl.handle.net/1721.1/108043 https://orcid.org/0000-0003-1312-6705 |
| _version_ | 1826200033868906496 |
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| author | Goldfarb, Avi Agrawal, Ajay K Catalini, Christian |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Goldfarb, Avi Agrawal, Ajay K Catalini, Christian |
| author_sort | Goldfarb, Avi |
| collection | MIT |
| description | 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 U.S., 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 non-equity 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. |
| first_indexed | 2024-09-23T11:29:52Z |
| format | Article |
| id | mit-1721.1/108043 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T11:29:52Z |
| publishDate | 2017 |
| publisher | University of Chicago Press |
| record_format | dspace |
| spelling | mit-1721.1/1080432022-10-01T04:01:59Z Some Simple Economics of Crowdfunding Goldfarb, Avi Agrawal, Ajay K Catalini, Christian Sloan School of Management Catalini, Christian Agrawal, Ajay K Catalini, Christian 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 U.S., 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 non-equity 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. 2017-04-11T14:20:37Z 2017-04-11T14:20:37Z 2014 2013-06 Article http://purl.org/eprint/type/BookItem 9780226158563 http://hdl.handle.net/1721.1/108043 Agrawal, Ajay K., Catalini, Christian, and Goldfarb, Avi. "Some Simple Economics of Crowdfunding." Innovation Policy and the Economy 2013, ed. Josh Lerner and Scott Stern, Univeristy of Chicago Press, 2014, 1-47. © 2014 National Bureau of Economic Research Innovation Policy and the Economy https://orcid.org/0000-0003-1312-6705 en_US http://press.uchicago.edu/ucp/books/book/distributed/I/bo18508109.html Innovation Policy and the Economy 2013 Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf University of Chicago Press Catalini |
| spellingShingle | Goldfarb, Avi Agrawal, Ajay K Catalini, Christian Some Simple Economics of Crowdfunding |
| title | Some Simple Economics of Crowdfunding |
| title_full | Some Simple Economics of Crowdfunding |
| title_fullStr | Some Simple Economics of Crowdfunding |
| title_full_unstemmed | Some Simple Economics of Crowdfunding |
| title_short | Some Simple Economics of Crowdfunding |
| title_sort | some simple economics of crowdfunding |
| url | http://hdl.handle.net/1721.1/108043 https://orcid.org/0000-0003-1312-6705 |
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