scholarly journals A Theory of Crowdfunding: A Mechanism Design Approach with Demand Uncertainty and Moral Hazard

2017 ◽  
Vol 107 (6) ◽  
pp. 1430-1476 ◽  
Author(s):  
Roland Strausz
Keyword(s):  
Moral Hazard ◽  
Mechanism Design ◽  
Demand Uncertainty ◽  
Aggregate Demand ◽  
Agency Cost ◽  
Expected Returns ◽  
Cost Information ◽  
Private Cost ◽  
Incentive Problems ◽  
Do So

Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard and private cost information threatens this benefit. Crowdfunding's after-markets enable consumers to actively implement deferred payments and thereby manage moral hazard. Popular crowdfunding platforms offer schemes that allow consumers to do so through conditional pledging behavior. Efficiency is sustainable only if expected returns exceed an agency cost associated with the entrepreneurial incentive problems. By reducing demand uncertainty, crowdfunding promotes welfare and complements traditional entrepreneurial financing, which focuses on controlling moral hazard. (JEL D21, D81, D82, D86, G32, L26)

Procurement for Assembly Under Asymmetric Information: Theory and Evidence

2021 ◽  
Author(s):  
Andrew M. Davis ◽  
Bin Hu ◽  
Kyle Hyndman ◽  
Anyan Qi
Keyword(s):  
Supply Chain ◽  
Mechanism Design ◽  
Operations Management ◽  
Bargaining Power ◽  
Human Subjects ◽  
Cost Information ◽  
Supply Chain Efficiency ◽  
Private Cost ◽  
Dynamic Bargaining ◽  
Sequential Contracting

We study an original equipment manufacturer (OEM) purchasing two inputs for assembly from two suppliers with private cost information. The OEM can contract with the two suppliers either simultaneously or sequentially. We consider both cases in which the OEM has relatively equal bargaining power (the dynamic bargaining institution) or substantial bargaining power (the mechanism design institution). For the dynamic bargaining institution, we show that in sequential bargaining, the supply chain profit is higher, the OEM earns a lower profit, the first supplier earns a higher profit, and the second supplier may earn a higher or lower profit, than compared with simultaneous bargaining. For the mechanism design institution, we show that all players’ profits are the same in simultaneous and sequential contracting. We also benchmark against a case where the OEM procures both inputs from a single integrated supplier (a dyadic supply chain). We then test these predictions in a human-subjects experiment, which supports many of the normative predictions qualitatively with some deviations: an OEM with relatively equal bargaining power weakly prefers to contract with suppliers simultaneously, whereas an OEM with substantial bargaining power prefers to contract with suppliers sequentially. In addition, the OEM’s profit and supply chain efficiency are higher in the dyadic supply chain than the assembly system. This paper was accepted by Charles Corbett, operations management.

Initial Coin Offerings, Speculation, and Asset Tokenization

2020 ◽  
Author(s):  
Jingxing (Rowena) Gan ◽  
Gerry Tsoukalas ◽  
Serguei Netessine
Keyword(s):  
Moral Hazard ◽  
Operations Management ◽  
Firm Value ◽  
Agency Costs ◽  
Demand Uncertainty ◽  
Customer Demand ◽  
Demand Characteristics ◽  
Operating Strategy ◽  
Mean Variance ◽  
Initial Coin Offerings

Initial coin offerings (ICOs) are an emerging form of fundraising for blockchain-based startups. We examine how ICOs can be leveraged in the context of asset tokenization, whereby firms issue tokens backed by future assets (i.e., inventory) to finance growth. We (i) make suggestions on how to design such “asset-backed” ICOs—including optimal token floating and pricing for both utility and equity tokens (a.k.a. security token offerings)—taking into account moral hazard (cash diversion), product characteristics, and customer demand uncertainty; (ii) make predictions on ICO success/failure; and (iii) discuss implications on firm operating strategy. We show that in unregulated environments, ICOs can lead to significant agency costs, underproduction, and loss of firm value. These inefficiencies, however, fade as product margins and demand characteristics (mean/variance) improve, and they are less severe under equity (rather than utility) token issuance. Importantly, the advantage of equity tokens stems from their inherent ability to better align incentives and thus continues to hold even absent regulation. This paper was accepted by Vishal Gaur, operations management.

scholarly journals The wrong track also leads someplace: Milton Friedman's presidential address at 50

2018 ◽  
Vol 6 (4) ◽  
pp. 517-532 ◽  
Author(s):  
Servaas Storm
Keyword(s):  
Phillips Curve ◽  
Presidential Address ◽  
Aggregate Demand ◽  
Financial Fragility ◽  
American Economic Association ◽  
Structural Forces ◽  
Long Run ◽  
Economic Association ◽  
The Right ◽  
Do So

Milton Friedman's presidential address to the American Economic Association holds a mythical status as the harbinger of the supply-side counter-revolution in macroeconomics – centred on the rejection of the long-run Phillips-curve inflation–unemployment trade-off. Friedman (seconded by Edmund Phelps) argued that the long run is determined by ‘structural’ forces, not demand, and his view swept the profession and dominated academic economics and macro policymaking for four decades. Friedman, tragically, put macroeconomics on the wrong track which led to disaster: secular stagnation, rising inequality, mounting indebtedness, financial fragility, a banking catastrophe and recession – and no free lunches. This is Friedman's legacy. We have to unlearn the wrong lessons and return macroeconomics to the right track. To do so, this paper shows that Friedman's (and Phelps's) conclusions break down in a general model of the long run in which productivity growth is endogenous – aggregate demand is driving everything again, short and long.

scholarly journals Does a deposit insurance scheme induce moral hazard among bankers? Evidence from an experiment with bankers

2018 ◽  
Vol 20 (3) ◽  
pp. 353
Author(s):  
Gumilang Aryo Sahadewo ◽  
Bernardinus Maria Purwanto ◽  
Rimawan Pradiptyo
Keyword(s):  
Moral Hazard ◽  
Deposit Insurance ◽  
Empirical Studies ◽  
Credit Market ◽  
Bank Failures ◽  
Insurance Scheme ◽  
Deposit Rate ◽  
Trade Off ◽  
Bank Run ◽  
Do So

The implementation of a deposit insurance scheme entails a trade off. On one hand, as shown in theoretical and empirical studies, a deposit insurance scheme reduces the likelihood of a bank run. On the other hand, a deposit insurance scheme induces moral hazard among bankers that may lead to bank failures. We rigorously test the effect of different deposit coverage limit and the implementation of a differential premium treatment on bankers’ behaviors in the deposit and credit market. We do so by designing a laboratory experiment that involves real bankers as participants. We find that the coverage limit treatments do not have any effect on deposit rate offer. Nevertheless, we find that a high deposit coverage limit induces smaller banks to have a higher share of risky projects. This is evidence of moral hazard particularly among small banks.

Sign in / Sign up

Export Citation Format

Share Document