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  • 100% Some Simple Economics of Crowdfunding June 2013
    Ajay Agrawal, Christian Catalini, Avi Goldfarb
    in Innovation Policy and the Economy, Volume 14, Josh Lerner and Scott Stern, editors

    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.

    ...Some Simple Economics of Crowdfunding Chapter Author(s): Ajay Agrawal, Christian Catalini, Avi Goldfarb Chapter URL: http://www.nber.org/chapters/c12946 Chapter pages in book: (p. 63 – 97) 3 Some Simple Economics of Crowdfunding Ajay Agrawal, University of Toronto and NBER Christian Catalini, MIT Avi Goldfarb, University of Toronto Executive Summary It is not surprising that the financing of...

    /chapters/c12946

  • 98% Crowdfunding Scientific Research March 2018
    Henry Sauermann, Chiara Franzoni, Kourosh Shafi

    Crowdfunding may provide much-needed financial resources, yet there is little systematic evidence on the potential of crowdfunding for scientific research. We first briefly review prior research on crowdfunding and give an overview of dedicated platforms for crowdfunding research. We then analyze data from over 700 campaigns on the largest dedicated platform, Experiment.com. Our descriptive analysis provides insights regarding the creators seeking funding, the projects they are seeking funding for, and the campaigns themselves. We then examine how these characteristics relate to fundraising success. The findings highlight important differences between crowdfunding and traditional funding mechanisms for research, including high use by students and other junior investigators but also relatively small project size. Junior investigators are more likely to succeed than senior scientists, and women have higher success rates than men. Conventional signals of quality - including scientists' prior publications - have no relationship with funding success, suggesting that the crowd applies different decision criteria than traditional funding agencies. Our results highlight significant opportunities for crowdfunding in the context of science while also pointing towards unique challenges. We relate our findings to research on the economics of science and on crowdfunding, and we discuss connections with other emerging mechanisms to involve the public in scientific research.

    ...CROWDFUNDING SCIENTIFIC RESEARCH Henry Sauermann Chiara Franzoni Kourosh Shafi Working Paper 24402 http://www.nber.org/papers/w24402 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2018 We thank Experiment.com co-founder Cindy Wu for help with data collection and for extremely helpful insights on the platform and its projects. The views expressed herein...

    /papers/w24402

  • 97% Some Simple Economics of Crowdfunding June 2013
    Ajay K. Agrawal, Christian Catalini, Avi Goldfarb

    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.

    ...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...

    /papers/w19133

  • 96% Peer-to-Peer Crowdfunding: Information and the Potential for Disruption in Consumer Lending January 2015
    Adair Morse

    Can peer-to-peer lending (P2P) crowdfunding disintermediate and mitigate information frictions in lending such that choices and outcomes for at least some borrowers and investors are improved? I offer a framing of issues and survey the nascent literature on P2P. On the investor side, P2P disintermediates an asset class of consumer loans, and investors seem to capture some rents associated with the removal of the cost of that financial intermediation. Risk and portfolio choice questions linger prior to any inference. On the borrower side, evidence suggests that proximate knowledge (direct or inferred) unearths soft information, and by implication, P2P should be able to offer pricing and/or access benefits to potential borrowers. However, social connections require costly certification (skin in the game) to inform credit risk. Early research suggests an ever-increasing scope for use of Big Data and incentivized re-intermediation of underwriting. I ask many more questions than current research can answer, hoping to motivate future research.

    ...-PEER CROWDFUNDING: INFORMATION AND THE POTENTIAL FOR DISRUPTION IN CONSUMER LENDING Adair Morse Working Paper 20899 http://www.nber.org/papers/w20899 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2015 I thank David Scharfstein and Francesco D’Acunto for very helpful comments. The views expressed herein are those of the author and do not necessarily...

    /papers/w20899

  • 96% Slack Time and Innovation April 2015
    Ajay Agrawal, Christian Catalini, Avi Goldfarb

    The extant literature linking slack time to innovation focuses on how slack time facilitates creative activities such as ideation, experimentation, and prototype development. We turn attention to how slack time may enable activities that are less creative but still important for innovation, namely mundane, execution-oriented tasks. First, we document the main effect: a sharp rise in innovative projects posted on a major crowdfunding platform when colleges are on break. Next, we report timing and project type evidence consistent with the causal interpretation that slack time drives innovation. Finally, we present a series of results consistent with the mundane task mechanism but not with the traditional creativity-related explanations. We do not rule out the possibility that creativity benefits from slack time. Instead, we introduce the idea that mundane, execution-oriented tasks, such as those associated with launching a crowdfunding campaign (e.g., administration, planning, promotion), are an important input to innovation that may benefit significantly from slack time.

    ...of Toronto for comments. We thank SSHRC and the Centre for Innovation and Entrepreneurship at the University of Toronto for financial support. Errors remain our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this...

    /papers/w21134

  • 95% Online Syndicates and Startup Investment June 2018
    Christian Catalini, Xiang Hui

    Early crowdfunding platforms were based on a premise of disintermediation from professional investors, and relied on the ‘wisdom of the crowd’ to screen high quality projects. This becomes problematic when equity is involved, as the degree of asymmetric information between entrepreneurs looking for funding and the crowd is higher than in reward-based crowdfunding. As a result, platforms later experimented with incentives for professional investors to curate deals for crowd. We study how the introduction of such incentives influenced the allocation of capital on the leading US platform, finding that the changes led to a sizable 33% increase in capital flows to new regions. Professional investors use their reputation to vouch for high potential startups that would otherwise be misclassified because of information asymmetry. This allows them to arbitrage opportunities across regions and shift capital flows to startups that are 37% more likely to generate above median returns. At the same time, this ‘democratization effect’ relies on the presence of intermediaries with professional networks that bridge these new regions to California. Using a large-scale field experiment with over 26,000 investors we further unpack the frictions to online investment, and show that social networks constitute a key barrier to additional democratization, since they influence how the crowd evaluates intermediaries in the first place.

    ...crowdfunding platforms were based on a premise of complete disintermediation from traditional experts. This approach becomes problematic when equity is involved because of asymmetric information between entrepreneurs and investors. Moreover, it favors regions that already attract a disproportionate share of capital offline. We find that the introduction of intermediaries through online syndicates...

    /papers/w24777

  • 82% Some Simple Economics of the Blockchain December 2016
    Christian Catalini, Joshua S. Gans

    We rely on economic theory to discuss how blockchain technology will shape innovation in digital platforms. We identify two key costs affected by the technology: 1) the cost of verification; and 2) the cost of networking. The first cost relates to the ability to cheaply verify the attributes of a transaction. The second one to the ability to bootstrap and operate a digital marketplace without the need for a traditional intermediary. A blockchain allows a decentralized network of economic agents to agree, at regular intervals, about the true state of shared data. This shared data can sup- port multiple types of online transactions and corresponding payments, exchanges of IP, information or other types of digital assets. The resulting digital marketplaces are characterized by increased competition, lower barriers to entry, lower privacy risk, and allow participants to make join investments in shared infrastructure without assigning market power to a platform operator. They also challenge the existing revenue models of incumbents, and open opportunities for new approaches to data ownership and licensing, digital advertising, incentivizing product adoption, auctions and reputation systems.

    ...SOME SIMPLE ECONOMICS OF THE BLOCKCHAIN Christian Catalini Joshua S. Gans Working Paper 22952 http://www.nber.org/papers/w22952 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 2016 We are thankful to Al Roth and Catherine Tucker for helpful discussions. The views expressed herein are those of the authors and do not necessarily reflect the views of...

    /papers/w22952

  • 81% Initial Coin Offerings and the Value of Crypto Tokens March 2018
    Christian Catalini, Joshua S. Gans

    This paper explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to only accept those tokens as payment for their products — to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, giving it value. We also find that venture returns are independent of any committed growth in the supply of tokens over time, but that initial funds raised are maximized by setting that growth to zero to encourage saving by early participants. Nonetheless, since the value of the tokens depends on a single period of demand, the ability to raise funds is more limited than in traditional equity finance. Furthermore, a lack of commitment in monetary policy undermines saving behavior, hence the cost of using tokens to fund start-up costs is inflexibility in future capital raises. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present.

    ...OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2018 The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w24418...

    /papers/w24418

  • 75% Seeding the S-Curve? The Role of Early Adopters in Diffusion September 2016
    Christian Catalini, Catherine Tucker

    In October 2014, all 4,494 undergraduates at the Massachusetts Institute of Technology were given access to Bitcoin, a decentralized digital currency. As a unique feature of the experiment, students who would generally adopt first were placed in a situation where many of their peers received access to the technology before them, and they then had to decide whether to continue to invest in this digital currency or exit. Our results suggest that when natural early adopters are delayed relative to their peers, they are more likely to reject the technology. We present further evidence that this appears to be driven by identity, in that the effect occurs in situations where natural early adopters' delay relative to others is most visible, and in settings where the natural early adopters would have been somewhat unique in their tech-savvy status. We then show not only that natural early adopters are more likely to reject the technology if they are delayed, but that this rejection generates spillovers on adoption by their peers who are not natural early adopters. This suggests that small changes in the initial availability of a technology have a lasting effect on its potential: Seeding a technology while ignoring early adopters' needs for distinctiveness is counterproductive.

    ...of the Provost for all their support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2016 by...

    /papers/w22596

  • 73% Archive of New National Bureau of Economic Research Working Papers and Books

    ...of Price Expectations on Auto-Repair Price Quotes Meghan R. Busse, Ayelet Israeli, and Florian Zettelmeyer #19154 ( IO ) Land Reform and Sex Selection in China Douglas Almond, Hongbin Li, and Shuang Zhang #19153 ( CH     DEV     HE     LE     LS     PE     POL ) Sequential Monte Carlo Sampling for DSGE Models Edward P. Herbst and Frank Schorfheide #19152 ( EFG...

    /new_archive/jun13.html

  • 57% Papers Issued in 2013

    ...of Vertical Rebates: Empirical Evidence Christopher T. Conlon and Julie Holland Mortimer w19773 December 2013 Unintended Consequences of LOLR Facilities: The Case of Illiquid Leverage Viral V. Acharya and Bruce Tuckman w19767 December 2013 Technological Learning and Labor Market Dynamics Martin Gervais, Nir Jaimovich, Henry E. Siu, and Yaniv Yedid-Levi w19766 December 2013 Market-based Lobbying...

    /papersbyyear/2013.html

  • 54% Introduction to "Economic Analysis of the Digital Economy" April 2015
    Avi Goldfarb, Shane M. Greenstein, Catherine E. Tucker
    in Economic Analysis of the Digital Economy, Avi Goldfarb, Shane M. Greenstein, and Catherine E. Tucker, editors

    Research on the economics of digitization studies how markets change when digitization leads to reproduction at zero cost and an abundance of digital data. Digital technology has led to a rapid decline in the cost of storage, computation, and transmission of data. As a consequence, economic activity is increasingly digital. The transformative nature of digital technology has implications for understanding economic activity, for consumer behavior, for competitive strategy, for new firm formation, and for determining policy. The introduction emphasizes the three key themes of the book’s chapters: Internet Supply and Demand, Economic Frictions and New Markets, and Government Policy. Each chapter is summarized and put into the context of the broader literature on the economics of digitization, providing a viewpoint on that literature. We do not view the economics of digitization as a new field. Instead, digitization research touches on a variety of fields. Research on the economics of digitization is distinguished by an emphasis on how digital technology and digital data interact with market outcomes. Specifically, economic settings transformed by digital data tend to have very low marginal costs of production and distribution, as well as lower transactions costs and market frictions, thereby raising numerous questions and issues.

    ...of contexts and also aims to set an agenda for future research in the economics of digitization. While no one volume can be comprehensive, the objective is to identify topics with promising areas of research. The chapters summarize and illustrate areas in which some research is already underway and warrant further exploration from economists. Of the various technology drivers enabling the rise of...

    /chapters/c12987

  • 52% Archive of NBER Papers on Productivity, Innovation, and Entrepreneurship

    ...OF ECONOMIC RESEARCH HOME PAGE loading... Select one Research Researchers Institutional Archive of NBER Papers on Productivity, Innovation, and Entrepreneurship browse recent papers 2017 w24174 Anton Korinek Joseph E. Stiglitz Artificial Intelligence and Its Implications for...

    /papersbyprog/PR_archive.html

  • 48% Amateurs Crowds & Professional Entrepreneurs as Platform Complementors April 2018
    Kevin J. Boudreau

    Platforms often have “crowds” of amateurs working on them as complementors, in other cases professional entrepreneurs—or both. What can a platform owner do to implement these outcomes? I document evidence on mobile app developers showing that just small, incremental changes in platform design—related to the bare minimum costs required to build an app and factors affecting non-pecuniary payoffs—can lead the “bottom-to-fall-out” of the market to amateurs. Where the bottom-falls-out, there is a flood of lowest-quality developers who nonetheless are long-lived on the platform and engage in relatively high development activity. I find no evidence that amateurs crowd-out development activity of top developers in this context. Moreover, the bottom-falling-out is associated with the generation of significantly greater numbers of highest-quality products. I discuss several interpretations.

    ...BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 April 2018 I would like to acknowledge helpful comments from seminar participants at Copenhagen Business School, Harvard University, London School of Economics, IESE, the NBER Summer Institute, New York University, University College London, University of Southern California, University of Michigan, Warwick University, the...

    /papers/w24512

  • 47% The Geography of Crowdfunding February 2011
    Ajay K. Agrawal, Christian Catalini, Avi Goldfarb

    Perhaps the most striking feature of "crowdfunding" is the broad geographic dispersion of investors in small, early-stage projects. This contrasts with existing theories that predict entrepreneurs and investors will be co-located due to distance-sensitive costs. We examine a crowdfunding setting that connects artist-entrepreneurs with investors over the internet for financing musical projects. The average distance between artists and investors is about 3,000 miles, suggesting a reduced role for spatial proximity. Still, distance does play a role. Within a single round of financing, local investors invest relatively early, and they appear less responsive to decisions by other investors. We show this geography effect is driven by investors who likely have a personal connection with the artist-entrepreneur ("family and friends"). Although the online platform seems to eliminate most distance-related economic frictions such as monitoring progress, providing input, and gathering information, it does not eliminate social-related frictions.

    ...OF CROWDFUNDING Ajay K. Agrawal Christian Catalini Avi Goldfarb WORKING PAPER 16820 NBER WORKING PAPER SERIES THE GEOGRAPHY OF CROWDFUNDING Ajay K. Agrawal Christian Catalini Avi Goldfarb Working Paper 16820 http://www.nber.org/papers/w16820 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2011 We thank Pierre Azoulay, Iain Cockburn, Gary...

    /papers/w16820

  • 44% Effects of the Price of Charitable Giving: Evidence from an Online Crowdfunding Platform May 2013
    Jonathan Meer

    A long literature has examined the effects of the price of giving - that is, the amount an in-dividual must give for one dollar to accrue to the charitable activity itself - on donative behavior. We use data from DonorsChoose.org, an online platform linking teachers with prospective donors, that are uniquely suited to addressing this question due to exogenous variation in overhead costs. An increased price of giving results in a lower likelihood of a project being funded. We also calculate the price elasticity of giving, finding estimates between -0.8 and -2; these are likely to be upper bounds on the tax price elasticity of charitable donations. Finally, we examine the effect of competition on giving and find that increased competition reduces the likelihood of a project being funded. These results provide insight into the workings of the market for charitable gifts.

    ...of a project being funded. We also calculate the price elasticity of giving, finding estimates between -0.8 and -2; these are likely to be upper bounds on the tax price elasticity of charitable donations. Finally, we examine the effect of competition on giving and find that increased competition reduces the likelihood of a project being funded. These results provide insight into the workings of...

    /papers/w19082

  • 44% Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales June 2018
    Sabrina T. Howell, Marina Niessner, David Yermack

    Initial coin offerings (ICOs) are a significant innovation in entrepreneurial finance. The sale of a blockchain-based digital token associated with a specific platform or venture is a new financing instrument with some parallels to IPOs, venture capital, and pre-sale crowdfunding. We examine the relationship between issuer characteristics and measures of success, with a focus on liquidity, using 453 ICOs that collectively raise $5.7 billion. We also employ proprietary transaction data in a case study of Filecoin, one of the most successful ICOs. We find that liquidity and trading volume are higher when issuers offer voluntary disclosure, credibly commit to the project, and signal quality.

    ...of this paper was written while David Yermack was a visiting professor at Erasmus University Rotterdam. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of...

    /papers/w24774

  • 43% Introduction to "Innovation Policy and the Economy, Volume 14" July 2013
    Josh Lerner, Scott Stern
    in Innovation Policy and the Economy, Volume 14, Josh Lerner and Scott Stern, editors

    ...of the National Bureau of Economic Research (NBER) Innovation Policy and the Economy (IPE) group. The appreciation of the importance of innovation to the economy has increased over the past decade. There is an active debate regarding the implications of technological change for economic policy and the appropriate policies and programs regarding research, innovation, and the commercialization of...

    /chapters/c12941

  • 43% FinTech in Sub-Saharan Africa: What Has Worked Well, and What Hasn't September 2018
    David Yermack

    The FinTech sector has begun to grow rapidly in sub-Saharan Africa. I document far greater adoption of social media, digital currency, ride sharing, and other FinTech applications in countries with a common law legal heritage compared to those with a civil law system, suggesting that legal origin plays a critical role in setting the stage for growth through entrepreneurship in the developing world. The electrical, telecom, and Internet infrastructure required for FinTech has been built out more extensively in common law countries. Financial inclusion outcomes are also better in emerging markets that have a common law heritage.

    ...of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2018 by David Yermack. All rights reserved. Short sections of text, not to exceed two...

    /papers/w25007

  • 42% Advancing the Science of Science Funding Workshop

    ...of Florida Crowdfunding Scientific Research (NBER Working paper No. 24402 ) Crowdfunding may provide much-needed financial resources, yet there is little systematic evidence on the potential of crowdfunding for scientific research. Sauermann , Franzoni , and Shafi first briefly review prior research on crowdfunding and give an overview of dedicated platforms for crowdfunding research. They...

    /conferences/2018/SFIs18/summary.html

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