Template-Type: ReDIF-Paper 1.0
Author-Name: Marina Halac
Author-Name-First: Marina
Author-Name-Last: Halac
Author-Name: Ilan Kremer
Author-Name-First: Ilan
Author-Name-Last: Kremer
Author-Name: Eyal Winter
Author-Name-First: Eyal
Author-Name-Last: Winter
Title: Raising Capital from Heterogeneous Investors
Abstract: A rm raises capital from multiple investors to fund a project. The project succeeds<br/>only if the capital raised exceeds a stochastic threshold, and the rm offers payments contingent on success. We study the rm's optimal unique-implementation scheme, namely the scheme that guarantees the rm the maximum payoff. This scheme pays investors differential net returns (per unit of capital) depending on the size of their investments. We show that if the distribution of the investment threshold is log-concave, larger investors receive higher net returns than smaller investors. Moreover, higher dispersion in investor size increases the rm's payoff. Our analysis highlights strategic risk as an important potential driver of inequality.
Creation-Date: 2018
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2018_021.pdf
File-Format: application/pdf
Number: 245773051
Classification-JEL: D86, G24, L24
Keywords: mechanism design, contracting with externalities, collective action problem, strategic complementarities, unique implementation
Handle: RePEc:lan:wpaper:245773051