Crowdfunding, Efficiency, and Inequality

Journal of the European Economic Association, forthcoming.

33 Pages Posted: 16 Dec 2016 Last revised: 20 Apr 2018

See all articles by Hans Peter Gruener

Hans Peter Gruener

University of Mannheim

Christoph Siemroth

University of Essex - Department of Economics

Date Written: February 22, 2018


We show how decentralized individual investments can efficiently allocate capital to innovating firms via equity crowdfunding. We develop a model where consumers have privately known consumption preferences and may act as investors. Consumers identify worthwhile investments based on their own preferences and invest in firms whose product they like. In the presence of aggregate demand uncertainty, an efficient capital allocation is achieved if all groups of consumers have enough liquidity to invest. If some groups of consumers cannot invest, capital flows reflect preferences of liquid investors but not future demand. Comparing with traditional financing forms, crowdfunding in the absence of liquidity constraints is superior unless traditional financiers are fully competitive and perfectly informed.

Keywords: Capital Markets, Crowdfunding, Crowdinvesting, Financial Markets, Information Aggregation, Wealth Inequality, Welfare

JEL Classification: D24, D31, D53, D63, D82, G20

Suggested Citation

Gruener, Hans Peter and Siemroth, Christoph, Crowdfunding, Efficiency, and Inequality (February 22, 2018). Journal of the European Economic Association, forthcoming.. Available at SSRN: or

Hans Peter Gruener

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Mannheim, 68131

Christoph Siemroth (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom


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