Christian Catalini

Some Simple Economics of Crowdfunding

It is not surprising that the financing of early-stage creative projects and ventures is typically geographically localized since these types of funding decisions are usually predicated on personal relationships and due diligence requiring face-to-face interactions in response to high levels of risk, uncertainty, and information asymmetry. So, to economists, the recent rise of crowdfunding—raising capital from many people through an online platform—which offers little opportunity for careful due diligence and involves not only friends and family but also many strangers from near and far, is initially startling. On the eve of launching equity-based crowdfunding, a new market for early-stage finance in the United States, we provide a preliminary exploration of its underlying economics. We highlight the extent to which economic theory, in particular transaction costs, reputation, and market design, can explain the rise of nonequity crowdfunding and offer a framework for speculating on how equity-based crowdfunding may unfold. We conclude by articulating open questions related to how crowdfunding may affect social welfare and the rate and direction of innovation.

The incidence and role of negative citations in science

Significance Providing a detailed classification of the types of citations that an article receives is important to establish the quality of a study and to characterize how current research builds upon prior work. The methodology that we propose also informs how to improve the citation process, for example by having scientists attach additional metadata to their citations. The approach is scalable to other fields and periods and can also be used to identify other types of citations (e.g., reuse of methods, materials, empirical tests of theory, and so on). Finally, our methods provide online repositories such as Google Scholar, PubMed, ISI Web of Science, and Scopus with a way to improve their search and ranking algorithms. Citations to previous literature are extensively used to measure the quality and diffusion of knowledge. However, we know little about the different ways in which a study can be cited; in particular, are papers cited to point out their merits or their flaws? We elaborated a methodology to characterize “negative” citations using bibliometric data and natural language processing. We found that negative citations concerned higher-quality papers, were focused on a study’s findings rather than theories or methods, and originated from scholars who were closer to the authors of the focal paper in terms of discipline and social distance, but not geographically. Receiving a negative citation was also associated with a slightly faster decline in citations to the paper in the long run.

Microgeography and the Direction of Inventive Activity

I provide novel empirical evidence grounded in an original theoretical framework to explain why colocation matters for the rate, direction, and quality of scientific collaboration. To address endogeneity concerns due to selection into colocation and matching, I exploit the constraints imposed on the spatial allocation of labs on the Jussieu campus of Paris by the removal of asbestos from its buildings. Consistent with search costs constituting a major friction to collaboration, colocation increases the likelihood of joint research by 3.5 times, an effect that is mostly driven by lab pairs that face higher search costs ex ante. Furthermore, separation does not negatively affect collaboration between previously colocated labs. However, while colocated labs grow increasingly similar in topics and literature cited, separated ones embark on less correlated research trajectories. Research outcomes, instead, seem to be mostly influenced by how distance affects execution costs: after colocation, labs are more lik...

Some Simple Economics of the Blockchain

We build on economic theory to discuss how blockchain technology can shape innovation and competition in digital platforms. We identify two key costs affected by the technology: the cost of verification and the cost of networking. The cost of verification relates to the ability to cheaply verify state, including information about past transactions and their attributes, and current ownership in a native digital asset. The cost of networking, instead, relates to the ability to bootstrap and operate a marketplace without assigning control to a centralized intermediary. This is achieved by combining the ability to cheaply verify state with economic incentives targeted at rewarding state transitions that are particularly valuable from a network perspective, such as the contribution of the resources needed to operate, scale, and secure a decentralized network. The resulting digital marketplaces allow participants to make joint investments in shared infrastructure and digital public utilities without assigning market power to a platform operator, and are characterized by increased competition, lower barriers to entry, and a lower privacy risk. Because of their decentralized nature, they also introduce new types of inefficiencies and governance challenges.

When early adopters don't adopt

How do bitcoin early adopters seed the adoption S curve? Individuals who naturally adopt a new technology early are important for influencing whether and how the technology diffuses more broadly among later users (1–7). Such natural early adopters (NEAs) may influence the difference between successful diffusion of new technology and failure. Yet the factors that most influence how and why NEAs engage with new technologies are not entirely understood. We asked, “What if natural early adopters are not able to adopt early?” This paper is the first to measure the counterfactual diffusion curve that occurs when NEAs are not allowed to adopt early. The results suggest that NEAs can stifle broader diffusion of a technology if their usual ability to be first—and to derive value from being first—is compromised. Small changes in the initial availability of a technology among different types of users can have a lasting effect on its potential.

Initial Coin Offerings and the Value of Crypto Tokens

This paper explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to only accept those tokens as payment for their products — to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, giving it value. We also find that venture returns are independent of any committed growth in the supply of tokens over time, but that initial funds raised are maximized by setting that growth to zero to encourage saving by early participants. Nonetheless, since the value of the tokens depends on a single period of demand, the ability to raise funds is more limited than in traditional equity finance. Furthermore, a lack of commitment in monetary policy undermines saving behavior, hence the cost of using tokens to fund start-up costs is inflexibility in future capital raises. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present.

Did Cheaper Flights Change the Direction of Science

We test how a reduction in travel cost affects the rate and direction of scientific research. Using a fine-grained, scientist-level dataset within chemistry (1991-2012), we find that after Southwest Airlines enters a new route, scientific collaboration increases by 50%, an effect that is magnified when weighting output by quality. The benefits from the lower fares, however, are not uniform across scientist types: younger scientists and scientists that are more productive than their local peers respond the most. Thus, cheaper flights, by reducing frictions otherwise induced by geography and allowing for additional face-to-face interactions, seem to enable better matches over distance.

Did Cheaper Flights Change the Geography of Scientific Collaboration

We test how a reduction in travel cost affects the rate and direction of scientific research. Using a fine-grained, scientist-level dataset within chemistry (1991-2012), we find that after Southwest Airlines enters a new route, scientific collaboration increases by 50%, an effect that is magnified when weighting output by quality. The benefits from the lower fares, however, are not uniform across scientist types: younger scientists and scientists that are more productive than their local peers respond the most. Thus, cheaper flights, by reducing frictions otherwise induced by geography and allowing for additional face-to-face interactions, seem to enable better matches over distance.

Slack Time and Innovation

The extant literature linking slack time to innovation focuses on how slack time facilitates creative activities such as ideation, experimentation, and prototype development. We turn attention to how slack time may enable activities that are less creative but still important for innovation, namely mundane, execution-oriented tasks. First, we document the main effect: a sharp rise in innovative projects posted on a major crowdfunding platform when colleges are on break. Next, we report timing and project type evidence consistent with the causal interpretation that slack time drives innovation. Finally, we present a series of results consistent with the mundane task mechanism but not with the traditional creativity-related explanations. We do not rule out the possibility that creativity benefits from slack time. Instead, we introduce the idea that mundane, execution-oriented tasks, such as those associated with launching a crowdfunding campaign (e.g., administration, planning, promotion), are an important input to innovation that may benefit significantly from slack time.

How Do Travel Costs Shape Collaboration

We test how a reduction in travel cost affects the rate and direction of scientific research. Using a fine-grained, scientist-level dataset within chemistry (1991-2012), we find that after Southwest Airlines enters a new route, scientific collaboration increases by 50%, an effect that is magnified when weighting output by quality. The benefits from the lower fares, however, are not uniform across scientist types: younger scientists and scientists that are more productive than their local peers respond the most. Thus, cheaper flights, by reducing frictions otherwise induced by geography and allowing for additional face-to-face interactions, seem to enable better matches over distance.