Learning Through Crowdfunding

43 Pages Posted: 7 Jul 2016 Last revised: 11 Dec 2017

See all articles by Gilles Chemla

Gilles Chemla

Imperial College Business School; Aix-Marseille University - Centre National de la Recherche Scientifique (CNRS)

Katrin Tinn

Imperial College London - Accounting, Finance, and Macroeconomics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2016

Abstract

We develop a model where reward-based crowdfunding enables firms to obtain a reliable proof of concept early in their production cycle. Crowdfunding allows firms to learn about total demand from a limited sample of target consumers pre-ordering a new product. Learning creates a valuable real option as firms invest only if updated in and out of sample 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. The real option value of learning enables these firms to overcome moral hazard, even if diverting funds is costless. 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. Expected funds raised are maximized at an intermediate sample size. Our results are consistent with stylized facts and lead to new empirical implications.

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

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

Suggested Citation

Chemla, Gilles and Tinn, Katrin, Learning Through Crowdfunding (June 2016). CEPR Discussion Paper No. DP11363. Available at SSRN: https://ssrn.com/abstract=2804541

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)

Aix-Marseille University - Centre National de la Recherche Scientifique (CNRS) ( email )

Marseille
France

Katrin Tinn

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
522
PlumX Metrics