Year: 2021
Type: article
Abstract: This dissertation is a study on the role that metrics and measures serve to incentivize actions by stakeholders whose payoffs are related to how these metrics perform relative to a goal. Specifically, stakeholders maximizing individual payoffs by affecting these measures, may lead to actions that jeopardizes the larger system objective. I study this phenomenon (referred as Goodhart's Law) in the areas of Crowdfunding and Supply Chains. In crowdfunding an entrepreneur sets a target amount to raise, through the duration of a live ``campaign." Unless the target is reached, the entrepreneur does not get the investments put forth by investors (``backers," in crowdfunding parlance). If the target amount is raised, the entrepreneur is obligated to deliver the physical product to the investors. The intended purpose of having the target as threshold is to incentivize the entrepreneurs to set a target amount that is large enough to cover for the product development cost, so that the entrepreneur does not find itself in a position where the campaign manages to reach the target, and yet does not have enough to start production. In chapter 2 we find that an entrepreneur, responding rationally to a platform's rule of ``campaign promotion," sets a target amount that is lower than the product development cost and exposes backers to the risk of non-delivery. In chapter 3, the entrepreneur can choose to not pursue production after observing the subscription level of the crowdfunding campaign. The investors are exposed to the risk of non-delivery when the crowdfunding campaign manages to reach the target, and yet the entrepreneur chooses to not pursue production. To exercise its right to not produce, the entrepreneur pays a premium to the supplier who supplies the parts to the entrepreneur. In chapter 4, I critique the Cash Conversion Cycle, a measure for operational efficiency. Including individual firm differences of sales growth rates, fiscal year endings and seasonality can significantly alter the interpretations. We show that a lower cash conversion cycle can merely be a result of firm specific differences which, if unaccounted, can be mistaken for better operational efficiency.
Author: Joyaditya Laik
Language: English
Subfield: Management Information Systems
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3202961121