Crowdfunding without Intermediation?
نویسنده
چکیده
I develop a game-theoretic model to study information asymmetries in the evolving equity crowdfunding market. I assume (1) there are two types of investors: informed (“insiders”) and uninformed (“outsiders”); (2) the insiders invest first; and (3) the outsiders observe the aggregate of insiders’ actions and then decide whether to invest. Under these assumptions, I prove that there does not exist a crowdfunding market equilibrium in which the insiders’ information is aggregated and high quality startups are funded with higher chances. I then use data from Regulation crowdfunding (Title III equity crowdfunding), and provide evidence that is consistent with the model implications. My results suggest that adverse selection is a primary barrier to equity crowdfunding, and new market designs are required to better develop this market.
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