Information Cascades and Threshold Implementation: Theory and an Application to Crowdfunding

A-Tier
Journal: Journal of Finance
Year: 2024
Volume: 79
Issue: 1
Pages: 579-629

Authors (2)

LIN WILLIAM CONG (Cornell University) YIZHOU XIAO (not in RePEc)

Score contribution per author:

2.018 = (α=2.02 / 2 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

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.

Technical Details

RePEc Handle
repec:bla:jfinan:v:79:y:2024:i:1:p:579-629
Journal Field
Finance
Author Count
2
Added to Database
2026-01-25