TY  - JOUR
AU  - Agrawal, Ajay K
AU  - Catalini, Christian
AU  - Goldfarb, Avi
TI  - Some Simple Economics of Crowdfunding
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 19133
PY  - 2013
Y2  - June 2013
DO  - 10.3386/w19133
UR  - http://www.nber.org/papers/w19133
L1  - http://www.nber.org/papers/w19133.pdf
N1  - Author contact info:
Ajay K. Agrawal
Rotman School of Management
University of Toronto
105 St. George Street
Toronto, ON M5S 3E6
CANADA
Tel: 416/946-0203
Fax: 416/978-5433
E-Mail: ajay.agrawal@rotman.utoronto.ca

Christian Catalini
MIT Sloan School of Management
100 Main Street, E62-480
Cambridge, MA 02142
Tel: 617/253-6727
E-Mail: catalini@mit.edu

Avi Goldfarb
Rotman School of Management
University of Toronto
105 St. George Street
Toronto, ON M5S 3E6
CANADA
Tel: 416/946-8604
Fax: 416/978-5433
E-Mail: agoldfarb@rotman.utoronto.ca
M1  - published as Ajay Agrawal, Christian Catalini, Avi Goldfarb. "Some Simple Economics of Crowdfunding," in Josh Lerner and Scott Stern, editors, "Innovation Policy and the Economy, Volume 14" University of Chicago Press (2014)

M3  - presented at "Innovation Policy and the Economy 2013", April 23, 2013
AB  - It is not surprising that the financing of early-stage creative projects and ventures is typically geographically localized since these types of funding decisions are usually predicated on personal relationships and due diligence requiring face-to-face interactions in response to high levels of risk, uncertainty, and information asymmetry. So, to economists, the recent rise of crowdfunding - raising capital from many people through an online platform - which offers little opportunity for careful due diligence and involves not only friends and family but also many strangers from near and far, is initially startling. On the eve of launching equity-based crowdfunding, a new market for early-stage finance in the U.S., we provide a preliminary exploration of its underlying economics. We highlight the extent to which economic theory, in particular transaction costs, reputation, and market design, can explain the rise of non-equity crowdfunding and offer a framework for speculating on how equity-based crowdfunding may unfold. We conclude by articulating open questions related to how crowdfunding may affect social welfare and the rate and direction of innovation.
ER  -