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Crowdfunding, Efficiency, and Inequality

Gruener, Hans Peter and Siemroth, Christoph (2019) 'Crowdfunding, Efficiency, and Inequality.' Journal of the European Economic Association, 17 (5). 1393 - 1427. ISSN 1542-4766

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We show how decentralized individual investments can efficiently allocate capital to innovating firms via equity crowdfunding. We develop a model where consumers have privately known consumption preferences and may act as investors. Consumers identify worthwhile investments based on their own preferences and invest in firms whose product they like. In the presence of aggregate demand uncertainty, an efficient capital allocation is achieved if all groups of consumers have enough liquidity to invest. If some groups of consumers cannot invest, capital flows reflect preferences of liquid investors but not future demand. Comparing with traditional financing forms, crowdfunding in the absence of liquidity constraints can be superior unless traditional financiers are fully competitive and perfectly informed.

Item Type: Article
Uncontrolled Keywords: Capital Markets, Crowdfunding, Crowdinvesting, Financial Markets, Financial Intermediation, Information Aggregation, Wealth Inequality, Welfare
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 15 Feb 2018 16:52
Last Modified: 11 Nov 2019 11:15

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