Information Cascades and Threshold Implementation: Theory and An Application to Crowdfunding / Lin William Cong, Yizhou Xiao.

Format:

Book

Author/Creator:

Cong, Lin William.

Contributor:

National Bureau of Economic Research.

Xiao, Yizhou.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30820.

NBER working paper series no. w30820

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

Economic interactions, such as crowdfunding, often involve sequential actions, observational learning, and contingent project implementation. We incorporate all-or-nothing thresholds in a canonical model of information cascades. Early supporters effectively delegate their decisions to a "gatekeeper," resulting in uni-directional cascades without herding on rejections. Project proposers consequently can charge higher prices. Proposal feasibility, project selection, and information aggregation all improve, even when agents can wait. Equilibrium outcomes depend on the crowd size, and project implementation and information aggregation achieve efficiency in the large-crowd limit. Our key insights remain robust under thresholds in dollar amounts, alternative equilibrium selection, among other model extensions.

Notes:

Print version record

January 2023.