Learning from and Disclosing to the Crowd

33 Pages Posted: 5 Jul 2019

See all articles by Lin Nan

Lin Nan

Purdue University

Chao Tang

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Xin Wang

Hong Kong University of Science & Technology (HKUST) - Dept. of Industrial Engineering and Decision Analytics

Gaoqing Zhang

University of Minnesota

Date Written: July 3, 2019

Abstract

We investigate the role of mandatory disclosure in crowdfunding markets. Our analysis identifies that crowdfunding provides a benefit for an entrepreneur to learn consumers' preferences before deciding whether to launch an innovative product. However, the crowdfunding market also features an under-implementation inefficiency, driven by two types of uncertainty that consumers face: fundamental uncertainty about the entrepreneur's implementation cost, and strategic uncertainty due to potential coordination failures among consumers. We find that, the mandatory disclosure of the implementation cost, although eliminates the fundamental uncertainty, may not necessarily mitigate the strategic uncertainty. We obtain a somewhat surprising result that, from an ex-ante perspective, mandating disclosure actually makes it even less likely for the entrepreneur to implement the new product than without disclosure, thus impairing efficiency.

Suggested Citation

Nan, Lin and Tang, Chao and Wang, Xin and Zhang, Gaoqing, Learning from and Disclosing to the Crowd (July 3, 2019). Available at SSRN: https://ssrn.com/abstract=3414252 or http://dx.doi.org/10.2139/ssrn.3414252

Lin Nan

Purdue University ( email )

100 S Grant St
West Lafayette, IN 47907
United States
7654960551 (Phone)

Chao Tang

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

Xin Wang

Hong Kong University of Science & Technology (HKUST) - Dept. of Industrial Engineering and Decision Analytics ( email )

Hong Kong

Gaoqing Zhang (Contact Author)

University of Minnesota ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

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