Profit Sharing: A Contracting Solution to Harness the Wisdom of the Crowd∗

نویسنده

  • Jiasun Li
چکیده

When a group of investors with dispersed private information jointly invest in a risky project, how should they divide up the project payoff? A typical common stock contract rewards investors in proportion to their initial investment, but is it really optimal for harnessing all investors’ “wisdom of the crowd”? By showing that a simple profit-sharing contract with decentralized decision making could first best coordinate individuals’ investment choices, this paper studies as a general contracting problem the role of profit sharing in harnessing the crowd wisdom, and discusses implications for the security design of JOBS Act Title III investment crowdfunding. Our result connects the traditional diversification insight underpinning portfolio theory with contracting and investment under private information.

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تاریخ انتشار 2017