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; 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: June 2016


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)

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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