Optimal crowdfunding design

We characterize optimal reward-based crowdfunding where production is contingent on an aggregate funding threshold. Crowdfunding adapts project implementation to demand (market-testing) and its multiple prices enhance rent-extraction via pivotality, even for large crowds, indeed arbitrarily large if tastes are correlated. Adaptation raises welfare. Rent-extraction can enhance adaptation, but sometimes distorts production and lowers welfare. Threshold commitment, central to All-Or-Nothing platforms, raises profits but can lower consumer welfare. Platforms sometimes promote not-for-profits to raise success rates. When new buyers arrive ex-post, crowdfunding’s market-test complements traditional finance and optimizes subsequent pricing. Crowdfunding is a general optimal mechanism in our baseline.