Learning Through Crowdfunding

43 Pages Posted: 16 Jun 2016 Last revised: 14 Dec 2018

See all articles by Gilles Chemla

Gilles Chemla

Imperial College Business School; CNRS ; Centre for Economic Policy Research (CEPR)

Katrin Tinn

McGill University - Desautels Faculty of Management; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 6, 2018


We develop a model where reward-based crowdfunding enables firms to obtain a reliable proof of concept early in their production cycle: they learn about total demand from a limited sample of target consumers pre-ordering a new product. Learning from the crowdfunding sample creates a valuable real option as firms invest only if updated expectations about total demand is sufficiently high. This is particularly valuable for firms facing a high degree of uncertainty about consumer preferences, such as developers of innovative consumer products. Learning also enables firms to overcome moral hazard. The higher the funds raised, the lower the firms' incentives to divert them, provided third-party platforms limit the sample size by restricting campaign length. While the probability of campaign success decreases with sample size, the expected funds raised are maximized at an intermediate sample size. Our results are consistent with stylized facts and lead to new empirical implications.

Keywords: Reward-based crowdfunding, moral hazard, real options, learning, uncertainty, Kickstarter

JEL Classification: D80, G30, L14, L26, O30

Suggested Citation

Chemla, Gilles and Tinn, Katrin, Learning Through Crowdfunding (December 6, 2018). Available at SSRN: https://ssrn.com/abstract=2796435 or http://dx.doi.org/10.2139/ssrn.2796435

Gilles Chemla (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 207 594 9161 (Phone)
+44 207 594 9210 (Fax)

CNRS ( email )

Dauphine Recherches en Management
Place du Marechal de Lattre de Tassigny
Paris, 75016
331 44054970 (Phone)

Centre for Economic Policy Research (CEPR)

United Kingdom

Katrin Tinn

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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