Bargaining over crowdfunding benefits
Journal of Entrepreneurship and Public Policy
ISSN: 2045-2101
Article publication date: 17 May 2018
Issue publication date: 28 June 2018
Abstract
Purpose
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/approach
The present paper develops a multi-stage bargaining model with a double-sided moral hazard.
Findings
It 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 implications
Entrepreneurs 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/value
This 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.
Keywords
Citation
Bade, M. (2018), "Bargaining over crowdfunding benefits", Journal of Entrepreneurship and Public Policy, Vol. 7 No. 2, pp. 166-177. https://doi.org/10.1108/JEPP-D-18-00009
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited