Some Simple Economics of Crowdfunding / Ajay K. Agrawal, Christian Catalini, Avi Goldfarb.

Format:

Book

Author/Creator:

Agrawal, Ajay K.

Contributor:

National Bureau of Economic Research.

Catalini, Christian.

Goldfarb, Avi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19133.

NBER working paper series no. w19133

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

June 2013.