The Promise of Reward Crowdfunding

57 Pages Posted: 5 Jan 2018  

María Gutiérrez Urtiaga

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa; European Corporate Governance Institute (ECGI)

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2018

Abstract

We study reward crowdfunding, the most innovative segment of the crowdfunding market, where, instead of a debt or equity contract, fund providers are promised some good or service in the future in exchange for their contribution to the funding of the investment project under a contract that does not penalize the creator's failure to deliver. The existing economic and legal literature is puzzled by the platforms use of this seemingly inefficient contract where a standard pre-sale contract would appear to work better. Counter intuitively, we prove that the no-penalty contract is the optimal contract between creators of unknown talent and early adopters of their products when creators can benefit from being discovered as talented and from the goodwill generated by delivering on their promise to early adopters. Our analysis has important policy implications on how backers should be protected. Standard measures of consumer or investor protection may be counterproductive.

Keywords: Reward crowdfunding, best efforts, presale contract, talent discovery

JEL Classification: G23, G24, K22

Suggested Citation

Gutiérrez Urtiaga, María and Sáez Lacave, Maria Isabel, The Promise of Reward Crowdfunding (January 1, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 542/2017. Available at SSRN: https://ssrn.com/abstract=3096753 or http://dx.doi.org/10.2139/ssrn.3096753

María Gutiérrez Urtiaga (Contact Author)

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 624 58 40 (Phone)
+34-91 624 96 07 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law ( email )

C/ Kelsen 1
Madrid, 28049
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
73
rank
300,556
Abstract Views
300
PlumX