Optimal Disclosure on Crowdfunding Platforms

We study a trade-off between protecting investors and encouraging new (and possibly innovative) products on reward-based crowdfunding platforms. Informing investors about the risks of an investment opportunity can protect them from losses, but this can come at the cost of discouraging new products. A regulator that prioritizes investor interests may find it optimal to choose disclosure requirements that are not fully informative about projects. Partial disclosure enables investors to commit to sometimes funding low-quality projects, which can encourage a greater array of new products. We provide conditions under which a profit-motivated platform establishes regulator-optimal disclosure requirements and study the substitutability between the regulation of disclosure and reputation systems.