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Bargaining over crowdfunding benefits

Bargaining over crowdfunding benefits Crowdfunding creates multifaceted benefits for different agents who all desire to extract some of these benefits. The purpose of this paper is to analyze the allocation of crowdfunding benefits among crowdfunders, entrepreneurs, and venture capitalists.Design/methodology/approachThe present paper develops a multi-stage bargaining model with a double-sided moral hazard.FindingsIt is demonstrated that higher entrepreneurial bargaining power vis-à-vis the crowd may not always be beneficial for the venture. Most importantly, this is due to the reduced success probability of crowdfunding resulting from higher bargaining power of the entrepreneur. Bargaining power and the value of outside options determine the equilibrium allocation of crowdfunding benefits, expected venture value, and thus expected wealth of all agents.Practical implicationsEntrepreneurs face a tradeoff between venture quality gains and worse outcomes from crowdfunding campaigns. Crowdfunding success and thus venture quality gains are the ultimate goal of policy makers if they aim to enhance the overall social welfare.Originality/valueThis paper is the first to investigate how multifaceted crowdfunding benefits are allocated between the crowd, entrepreneurs, and venture capitalists. The paper furthers the development of an appropriate regulatory framework for crowdfunding by depicting new and original effects related to crowdfunding. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Enterpreneurship and Public Policy Emerald Publishing

Bargaining over crowdfunding benefits

Bade, Marco
Journal of Enterpreneurship and Public Policy , Volume 7 (2): 12 – Jun 28, 2018
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References (31)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2045-2101
DOI
10.1108/jepp-d-18-00009
Publisher site
See Article on Publisher Site

Abstract

Crowdfunding creates multifaceted benefits for different agents who all desire to extract some of these benefits. The purpose of this paper is to analyze the allocation of crowdfunding benefits among crowdfunders, entrepreneurs, and venture capitalists.Design/methodology/approachThe present paper develops a multi-stage bargaining model with a double-sided moral hazard.FindingsIt is demonstrated that higher entrepreneurial bargaining power vis-à-vis the crowd may not always be beneficial for the venture. Most importantly, this is due to the reduced success probability of crowdfunding resulting from higher bargaining power of the entrepreneur. Bargaining power and the value of outside options determine the equilibrium allocation of crowdfunding benefits, expected venture value, and thus expected wealth of all agents.Practical implicationsEntrepreneurs face a tradeoff between venture quality gains and worse outcomes from crowdfunding campaigns. Crowdfunding success and thus venture quality gains are the ultimate goal of policy makers if they aim to enhance the overall social welfare.Originality/valueThis paper is the first to investigate how multifaceted crowdfunding benefits are allocated between the crowd, entrepreneurs, and venture capitalists. The paper furthers the development of an appropriate regulatory framework for crowdfunding by depicting new and original effects related to crowdfunding.

Journal

Journal of Enterpreneurship and Public Policy – Emerald Publishing

Published: Jun 28, 2018

Keywords: Venture capital; Entrepreneurship; Crowdfunding; Bargaining games; Crowdfunding benefits

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