Information Cascades and Threshold Implementation: Theory and An Application to Crowdfunding
Journal of Finance, Forthcoming
61 Pages Posted: 22 Feb 2018 Last revised: 11 Jan 2023
There are 3 versions of this paper
Information Cascades and Threshold Implementation: Theory and An Application to Crowdfunding
Information Cascades and Threshold Implementation: Theory and An Application to Crowdfunding
Information Cascades and Threshold Implementation: Theory and an Application to Crowdfunding
Date Written: January 14, 2023
Abstract
Economic interactions, such as crowdfunding, often involve sequential actions, observational learning, and contingent project implementation. We incorporate all-or-nothing thresholds in a canonical model of information cascades. Early supporters effectively delegate their decisions to a ``gatekeeper,'' resulting in uni-directional cascades without herding on rejections. Project proposers consequently can charge higher prices. Proposal feasibility, project selection, and information aggregation all improve, even when agents can wait. Equilibrium outcomes depend on the crowd size, and project implementation and information aggregation achieve efficiency in the large-crowd limit. Our key insights remain robust under thresholds in dollar amounts, alternative equilibrium selection, among other model extensions.
Keywords: All-or-nothing, Crowdaction, Entrepreneurship, FinTech, Information Aggregation, Platforms, Venture Capital
JEL Classification: D81, D83, G12, G14, L26
Suggested Citation: Suggested Citation