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Optimal Crowdfunding Design

40 Pages Posted: 17 Feb 2016 Last revised: 7 Dec 2016

Matthew Ellman

Institut d'Anàlisi Econòmica (CSIC); Barcelona Graduate School of Economics (Barcelona GSE)

Sjaak Hurkens

Institute for Economic Analysis-CSIC; Barcelona GSE

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Date Written: October 29, 2016


We characterize optimal reward-based crowdfunding where production is contingent on an aggregate funding threshold. Crowdfunding adapts project implementation to demand (market-testing) and its multiple prices enhance rent-extraction via pivotality, even for large crowds, indeed arbitrarily large if tastes are correlated. Adaptation raises welfare. Rent-extraction can enhance adaptation, but sometimes distorts production and lowers welfare. Threshold commitment, central to All-Or-Nothing platforms, raises profits but can lower consumer welfare. Platforms sometimes promote not-for-profits to raise success rates. When new buyers arrive ex-post, crowdfunding’s market-test complements traditional finance and optimizes subsequent pricing. Crowdfunding is a general optimal mechanism in our baseline.

Keywords: Crowdfunding, mechanism design, entrepreneurial finance, market-testing, adaptation, rent-extraction

JEL Classification: C72, D42, L12

Suggested Citation

Ellman, Matthew and Hurkens, Sjaak, Optimal Crowdfunding Design (October 29, 2016). Available at SSRN: or

Matthew Ellman

Institut d'Anàlisi Econòmica (CSIC) ( email )

UAB Campus
E-08193 Bellaterra, Barcelona 08193
0034935806612 (Phone)

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005

J.P.M. (Sjaak) Hurkens (Contact Author)

Institute for Economic Analysis-CSIC

campus UAB
Bellaterra, 08193

Barcelona GSE ( email )

(34-93) 5806612 (Phone)
(34-93) 5801452 (Fax)

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