The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Information Cascades and Threshold Implementation: Theory and an Application to Crowdfunding
Published: 11/05/2023 | DOI: 10.1111/jofi.13294
LIN WILLIAM CONG, YIZHOU XIAO
Economic interactions often involve sequential actions, observational learning, and contingent project implementation. We incorporate all‐or‐nothing thresholds in a canonical model of information cascades. Early supporters effectively delegate their decisions to a “gatekeeper,” resulting in unidirectional cascades without herding on rejections. Project proposers can consequently charge higher prices. Proposal feasibility, project selection, and information aggregation all improve, even when agents can wait. Equilibrium outcomes depend on crowd size, and project implementation and information aggregation achieve efficiency in the large‐crowd limit. Our key insights hold under thresholds in dollar amounts and alternative equilibrium selection, among other model extensions.