Crowdfunding in the Context of New Institutional Economics

Funk, Andrea S.

doi:10.1007/978-3-319-97253-4_2

Crowdfunding in the Context of New Institutional Economics

Andrea S. Funk²

Chapter
First Online: 02 February 2019

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Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

New Institutional Economics can help explain why new institutions like crowdfunding arise. Irrespective of their constitution and status, institutions receive their legitimacy from the necessity to restrict and organise transactions and social behaviour. Characteristically, developed countries have stronger institutions and their citizens primarily rely on formal institutions. Although the Chinese government is promoting the formalisation of its institutions, per definition and as of today, the PRC is still a developing or at least a transition country. In particular, in terms of its financial sector, China is struggling to accelerate reforms. Indeed, the majority of its population still relies on informal finance as formal institutions do not meet their demand for finance. This work will argue that crowdfunding has the potential to bridge informal and formal financial institutions in China and eventually support the country’s move towards a developed country with strong institutions.

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Notes

1.
Picot et al. (2002, p. 36).
2.
Williamson (1986, p. 178 ff).
3.
North (1990, p. 20).
4.
Rutherford (1989).
5.
North (1990, p. 11).
6.
Ibid.
7.
Ibid.
8.
Williamson (1975, p. 7).
9.
Williamson (1990, p. 69).
10.
Picot et al. (2002, p. 70).
11.
North (1990, p. 3).
12.
North (1990, p. 4 ff).
13.
Hodgson (2006, p. 2).
14.
Hodgson (2006, p. 9).
15.
Social institutions “refer to established ways of behaving […] which organize the primary social practices, roles, and relationships within a culture”. (Chandler and Munday 2011, n.p.).
16.
Hodgson (2006, p. 11).
17.
North (1990, p. 61).
18.
North (1990, p. 61). The author explicitly distinguishes between formal rules and informal constraints; however, as informal institutions can likewise enable and formal institutions simultaneously can restrict, the terms rules and constraints are used as synonyms in this work.
19.
North (1990, p. 6).
20.
The Coase Theorem proposes that market participants can solve market problems that arose from externalities themselves as long as there are no transactions costs (Coase 1960).
21.
Chandler and Munday (2011, n.p.).
22.
Hodgson (2006, p. 2).
23.
Hodgson (2006, p. 3).
24.
Hodgson (2006, p. 3 ff).
25.
Chandler and Munday (2011, n.p.).
26.
North (1990, p. 34).
27.
Granville and Leonard (2010).
28.
Depending on the eye of the beholder, China is either categorised as a developing or a transitory country. Each definition includes certain advantages and disadvantages, depending on the respective situation. For example, a developing status may be supportive to obtain subsidies, whilst a transitory status, for instance, may ease international trade. Thus, the PRC or other actors deliberately using one or the other definition are likely to pursue a certain end.
29.
In this context, Hall and Soskice (2001) have discussed varieties of capitalism. Depending on the criteria and sector in perspective, China can be located in different categories of capitalism.
30.
Arrow (1969, p. 1).
31.
Coase (1937).
32.
Coase (1937, p. 389).
33.
North (1990, p. 12).
34.
North (1990, p. vi).
35.
Williamson (1985, p. 22).
36.
North (1990, p. 34).
37.
Williamson (1986, p. 175).
38.
Macneil (1978).
39.
Williamson (1985, p. 69 ff).
40.
Wallis and North (1986, p. 120).
41.
Williamson (1985, p. 17 ff, p. 387).
42.
Williamson (1985, p. 20).
43.
Williamson (1985, p. 21).
44.
Dahlmann (1979, p. 148).
45.
Furubotn and Richter (1991, p. 9).
46.
Jensen and Meckling (1976, p. 308).
47.
“[H]uman agents are intendedly rational but only limitedly so. That is manifestly true and massively influences the manner in which the subject of contract is conceived”. (Williamson 1985, p. 388).
48.
According to Williamson, opportunism “is a condition of self-interest seeking with guile”. (Williamson 1985, p. 30).
49.
Akerlof (1970, p. 492 ff).
50.
Goebel (2002, p. 278 ff).
51.
Williamson (1986, p. 174).
52.
Ibid.
53.
Williamson (1985, p. 388 ff).
54.
Williamson (1986, p. 181).
55.
Williamson (1986, p. 178).
56.
Williamson (1986, p. 187).
57.
Williamson (1986, p. 118).
58.
Williamson (1986, p. 105).
59.
Williamson (1986, p. 111).
60.
Williamson (1986, p. 122).
61.
Williamson (1986, p. 112).
62.
Williamson (1986, p. 105).
63.
Williamson (1986, pp. 112–114).
64.
Williamson (1986, p. 117 ff).
65.
Williamson (1986, p. 118).
66.
Williamson (1986, p. 118).
67.
Furubotn and Richter (1991, p. 14).
68.
Lambert and Schwienbacher (2010, p. 7).
69.
Winborg (2009, p. 72).
70.
Belleflamme et al. (2014, p. 590).
71.
Schwienbacher and Larralde (2012, p. 377).
72.
People’s Bank of China (2014, p. 135). However, private Chinese citizens are allowed to trade with Bitcoins. In fact, “China has become the world’s largest bitcoin trading market.” (Cryptocoinsnews.com n.d., n.p.).
73.
Harrison (2013).
74.
The differences of donation-, reward-, debt-, and equity-based crowdfunding are explained in Sect. 3.1.
75.
Donaldson (1965).
76.
Schwienbacher (2007, p. 755).
77.
Woo et al. (1991).
78.
Woo et al. (1991, p. 107).
79.
Miner et al. (1992, p. 112).
80.
“Novice founders are those that have no prior entrepreneurial experience as either a founder, an inheritor, or a purchaser of a business.” (Westhead and Wright 1998, p. 173).
81.
“Portfolio founders retain their original business and inherit, establish, and/or purchase another business.” (Westhead and Wright 1998, p. 173).
82.
“Serial founders are those who sell their original business but at a later date inherit, establish, and/or purchase another business.” (Westhead and Wright 1998, p. 173).
83.
Westhead and Wright (1998, p. 174).
84.
Westhead and Wright (1998, p. 177).
85.
Westhead and Wright (1998, p. 179).
86.
Westhead and Wright (1998, p. 191).
87.
80.5% of novice founders, 73.3% of portfolio founders, and 87.9% of serial founders stated that they relied on personal savings and capital from friends and family in order to start-up their venture. (Westhead and Wright 1998, p. 191).
88.
Westhead and Wright (1998, p. 190). The authors discovered that novice, portfolio and serial founders on average applied a number of 1.6, 1.7, and 1.8 sources respectively for their start-up phase. (Westhead and Wright 1998, p. 187).
89.
Westhead and Wright (1998, p. 190 ff).
90.
Schwienbacher (2007, p. 754).
91.
According to (Schwienbacher 2007, p. 759), in terms of financial decisions “portfolio entrepreneurs and opportunistic entrepreneurs share some similarities with serial entrepreneurs, while craftsman entrepreneurs and inventor entrepreneurs resemble life-style entrepreneurs.”
92.
Schwienbacher (2007, p. 756).
93.
Schwienbacher (2007, p. 755 ff).
94.
Schwienbacher (2007, p. 755).
95.
Schwienbacher (2007, p. 755 ff).
96.
Benston and Smith (1976, p. 217).
97.
See e.g. Mas-Colell (2016).
98.
Benston and Smith (1976, p. 215).
99.
Draper and Hoag (1978, p. 595).
100.
Benston and Smith (1976, p. 215 ff).
101.
Benston and Smith (1976, p. 222).
102.
Ibid.
103.
Benston and Smith (1976, p. 223).
104.
This dissertation will not further analyse securities markets.
105.
Xie et al. (2016, p. 10).
106.
Ibid.
107.
Hartmann-Wendels et al. (2007, p. 4 ff).
108.
Hartmann-Wendels et al. (2007, p. 5 ff).
109.
Lapavitsas (2013a).
110.
Boston University (2014, 35:25).
111.
Boston University (2014, 45:18).
112.
Boston University (2014, 46:05).
113.
Boston University (2014, 49:33).
114.
Boston University (2014, 51:42).
115.
Boston University (2014, 24:36–25:30).
116.
Piketty (2014).
117.
Bofinger and Scheuermeyer (2015).
118.
Lapavitsas used the term “re-regulation”, see above.
119.
Lapavitsas (2013b).
120.
Boston University (2014, 1:18:50).
121.
Lapavitsas refers to the global financial crisis of 2007–2009.
122.
Boston University (2014, 1:21:40).
123.
Jiang (2009a, p. 12).
124.
Adams and Fitchett (1992b, p. 2).
125.
Adams (1992, p. 18).
126.
Wai (1957).
127.
Hsu (2009, p. 4).
128.
Callier (1990, p. 273).
129.
See e.g. Maloney and Ahmed (1988) directing at Bangladesh; Bell (1990) contemplating India; Lamberte (1992) concentrating on the Philippines; amongst others.
130.
See e.g. Larson and Urquidi (1987), Adams and Canavesi (1992).
131.
Begashaw (1978).
132.
Graham and Cuevas (1990).
133.
Shipton (1992).
134.
Baydas et al. (1995).
135.
Besley and Levenson (1996).
136.
Madestam (2014).
137.
Adams and Fitchett (1992b, p. 3).
138.
Mohieldin and Wright (2000, p. 658).
139.
Wai (1992, p. 344).
140.
Wai (1992, p. 339 ff).
141.
Adams and Fitchett (1992a, p. xi).
142.
Adams (1992, p. 7).
143.
Adams and Fitchett (1992b, p. 2).
144.
Jiang (2009a).
145.
Wai (1992, p. 338).
146.
Bouman and Moll (1992, p. 211).
147.
Adams (1992, p. 20).
148.
Wai (1992, p. 343).
149.
Wai (1992, p. 339).
150.
Ibid.
151.
Acharya et al. (2013).
152.
McCulley (2007).
153.
Pozsar et al. (2012, p. 1).
154.
Pozsar et al. (2012, p. 7 ff).
155.
Pozsar et al. (2012, p. 13).
156.
See e.g. Wei and Burns (2016).
157.
Pozsar et al. (2012, p. 10).
158.
Wei and Burns (2016, p. 2).
159.
Jiang (2009a, p. 26).
160.
See e.g. Besley and Levenson (1996); Tsai (2002); Madestam (2014); amongst others.
161.
Hsu (2009, p. 4).
162.
Adams (1992, p. 6).
163.
Tsai (2002), Adams and Fitchett (1992a), amongst others.
164.
Adams (1992, p. 19 ff).
165.
Li (2009, p. 53).
166.
Wai (1992, p. 337 ff).
167.
Adams (1992, p. 16).
168.
Adams and Canavesi (1992, p. 320).
169.
Adams and Canavesi (1992, p. 19).
170.
Deposits.org (2016).
171.
Inflation.eu (n.d.).
172.
See Sect. 2.4.1.
173.
Adams (1992, p. 19).
174.
This characteristic of informal finance reflects its unorganised connotation.
175.
Li (2009, p. 43).
176.
Baydas et al. (1995, p. 652).
177.
Jiang (2009b, p. 60).
178.
Wai (1992, p. 343).
179.
Adams and Fitchett 1992b, p. 3 ff; Wai (1992, p. 342 ff).
180.
See e.g. Callier (1990); Besley and Levenson (1996).
181.
Wai (1992, p. 343).
182.
Alijani et al. (2016, p. 210).
183.
Alijani et al. (2016, p. 222).
184.
Pischke (1992, p. 327).
185.
Pischke (1992, p. 334).
186.
Pischke (1992, p. 330).
187.
Pischke (1992, p. 329).
188.
Pischke (1992, p. 326 ff).
189.
Gugerty (2007, p. 278).
190.
Levenson and Besley (1996).
191.
Donoso et al. (2011, p. 191).
192.
Benda (2013, p. 232).
193.
Pischke (1992, p. 327).
194.
However, in fact, the members do not have to meet all in person in order to form a group; it is sufficient if the organiser approaches each member, collects the deposits and finally disburses it to the one who is entitled to receive the hand. (Pischke 1992, p. 328).
195.
Pischke (1992, p. 328).
196.
Guha and Gupta (2005, p. 1473).
197.
In contrast to ordinary members of a ROSCA, the organiser commonly bears a larger share of the overall transaction costs. Yet, she is often compensated for the latter by receiving the first hand of the cycle (Pischke 1992, p. 327).
198.
Pischke (1992, p. 329).
199.
“Inflation of course skews the benefits of ROSCAs when the hand consists of a fixed amount of currency. This may be accommodated by distributing the hand by auction, by shortening the life of the ROSCA, by specifying that ROSCA payments [are] made in kind, by requiring payment in dollars, or by reversing the order or rotation in subsequent cycles” (Pischke 1992, p. 332).
200.
Pischke (1992, p. 330).
201.
Pischke (1992, p. 331).
202.
Ibid.
203.
“Ease” of verification is a synonym for “convenience and speed” of verification. (Arner et al. 2015, p. 38).
204.
Dunkley (2016, n.p.).
205.
Xie et al. (2016, p. 1).
206.
Arner et al. (2015, p. 4).
207.
Yang (2016).
208.
Arner et al. (2015, p. 4).
209.
Ibid.
210.
Direct banks are “banks without physical branches” (Arner et al. 2015, p. 11).
211.
Arner et al. (2015, p. 6).
212.
Arner et al. (2015, p. 15 ff).
213.
Arner et al. (2015, p. 17).
214.
Arner et al. (2015, p. 33).
215.
Arner et al. (2015, p. 17).
216.
Jumpstart Our Business Startups: H.R.3606 (2012, p. 1).
217.
See also Sect. 3.3.1.
218.
Arner et al. (2015, p. 18).

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University of Würzburg, Würzburg, Germany
Andrea S. Funk

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Funk, A.S. (2019). Crowdfunding in the Context of New Institutional Economics. In: Crowdfunding in China. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-319-97253-4_2

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DOI: https://doi.org/10.1007/978-3-319-97253-4_2
Published: 02 February 2019
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-97252-7
Online ISBN: 978-3-319-97253-4
eBook Packages: Economics and FinanceEconomics and Finance (R0)

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