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Controlling information asymmetry in equity crowdfunding

Journal of Economic and Social Thought

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Field Value
 
Title Controlling information asymmetry in equity crowdfunding
 
Creator TORABI, Omid; PhD from INCEIF, Malaysia
MIRAKHOR, Abbas; retired professor of economics and finance
 
Subject Crowdfunding; Equity crowdfunding; Reputation mechanism; Mechanism of fame; Information asymmetry; Risk sharing.
C70; D82; D85;, D91; G23.
 
Description Abstract. Crowdfunding is a fast developing method of projects finance mobilization. However, weakness of trust and the associated problem of information asymmetry constrain risk sharing investments as well as equity crowdfunding. Reputation mechanism is one of the newest ways to address asymmetric information issue in web-based social networks. A reputational mechanism has been designed and named “Fame” in this paper specifically for equity crowdfunding systems to eliminate moral hazard and reduce asymmetric information. The term “Fame” is meant to capture the qualitative aspects of reputation such as trustworthiness, credibility, reliability of every individual member of an equity crowdfunding system. Fame is systematic, countable and computable (implicit and explicit) reputation monitoring mechanism. A game theory approach is employed using two different games: “without Fame” and “with Fame” games, to show that a “with Fame” crowdfunding game leads to better results. Moreover, net aggregate surplus in “with Fame” crowdfunding is larger than “without Fame” crowdfunding system. Keywords. Crowdfunding, Equity crowdfunding, Reputation mechanism, Mechanism of fame, Information asymmetry, Risk sharing.JEL. C70, D82, D85, D91, G23.
 
Publisher Journal of Economic and Social Thought
Journal of Economic and Social Thought
 
Contributor —
 
Date 2018-03-18
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Format application/pdf
 
Identifier http://www.kspjournals.org/index.php/JEST/article/view/1610
10.1453/jest.v5i1.1610
 
Source Journal of Economic and Social Thought; Vol 5, No 1 (2018): March; 32-41
Journal of Economic and Social Thought; Vol 5, No 1 (2018): March; 32-41
2149-0422
 
Language eng
 
Relation http://www.kspjournals.org/index.php/JEST/article/view/1610/1578
 
Rights Copyright (c) 2018 Journal of Economic and Social Thought
http://creativecommons.org/licenses/by-nc/4.0