Learning Through Crowdfunding.
Summary
We develop a model where reward-based crowdfunding enables firms to obtain a reliable proof of concept early in their production cycle. The information gathered from a subsample of backers through a fixed length pre-selling campaign enables firms to update their beliefs about the preferences of all future consumers. This creates a valuable real option as firms invest only if updated demand is high. Further, such updating mitigates moral hazard: the higher the funds raised, the lower the firms' incentives to divert them. Our results are consistent with stylized facts and provide new testable implications.
Publisher
Elsevier BV
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