Information Asymmetry in Quasi Public

Good Crowdfunding: A Case from China’s

EV Charging Pile Market

Yan LIa, Qi ZHANGa,*, Lijing ZHUa, Ge WANGa, Siyuan CHENa

a Academy of Chinese Energy Strategy, China University of Petroleum-Beijing,

18 Fuxue Road, Changping Dist., Beijing 102249, China

Content

2

Introduction

Methodology

Result

Conclusion

3

Background

Developing electric vehicle (EV) has became a irreversible trend.

Cope with energy exhaustion

Reducing air pollutionEmerging battery

technologies

4

Background

Current condition and future goal of EVs and charging piles in Beijing

5.00821.5

435

600

0

100

200

300

400

500

600

Public Charging Piles Private EVs

2015 2020 (goal)

Qu

anti

ty o

f C

har

gin

g P

iles

and

EV

s (t

ho

usa

nd

)

Source: Wind DB

Insufficiency of charging piles in China

The amount of public charging piles only takes 23.29% of private EVs

5

Background

Financing difficulties of quasi public good

Quasi public goodprovides benefits to the public, but could theoretically be restricted with a toll system.

Utilities (roads, pipelines, parks, etc.)

Distributed energy system (residential area PV power system, charging piles , residential heating system, etc.)

High externality free ride instead of offer QPG independently

Offer by government undersupply of QPG

6

Background

Definition

funding a project or venture by raising monetary contributions from a large number of people.

Benefits

• risk diversification• many a little makes a mickle• gather information from crowds• promote product design

Crowdfunding

7

Background

Main obstacle in Chinese crowdfunding market

Lack of supervision

High default rate undermines investors’ confidence

Information Asymmetry

U.S.A. JOBS (Jumpstart Our Business Startups Act)Italy Decreto Crescita Bis

Content

8

Introduction

Methodology

Result

Conclusion

9

Research Scale

① Herd effect (different from rational man)

② Social reputation (consider default risk)

The formation of reputation along the social network

Social Network

(scale-free network)In scale-free network small-world effects coexist with a large heterogeneity in neighborhood size, which is a good abstract of the real-world.

Give up Dilemma Zone Join

amount of adjacent nodes with positive views

𝑡𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑎𝑑𝑗𝑎𝑐𝑒𝑛𝑡 𝑛𝑜𝑑𝑒𝑠

10

Research Scale

① Herd effect (different from rational man)

② Social reputation (consider default risk)

The formation of reputation along the social network

Social Network

(scale-free network)In scale-free network small-world effects coexist with a large heterogeneity in neighborhood size, which is a good abstract of the real-world.

Give up Dilemma Zone Join

amount of adjacent nodes with positive views

𝑡𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑎𝑑𝑗𝑎𝑐𝑒𝑛𝑡 𝑛𝑜𝑑𝑒𝑠

11

Research Scale

① Herd effect (different from rational man)

② Social reputation (consider the impacts of default risk)

The formation of reputation along the social network

Social Network

(scale-free network)In scale-free network small-world effects coexist with a large heterogeneity in neighborhood size, which is a good abstract of the real-world.

Give up Dilemma Zone Join

Make decisions basedon the potential profit

12

Decision Horizon

Dif

fere

nt

Pro

ject

sPeriods

Potential Crowdfunders Crowdfunding Platform

Join or not (at the beginning of each project)

Default or not (for each existing project)

13

Flowchart of MethodologyStart

（Initialization）

Calculate the potential profit of joining crowdfunding f(r)

Crowdfunding Platform

No

Yes

Potential Crowdfunders

Set the parameter of crowdfunding

Observe the attitudes of adjacent nodes

NoYes

Do not join

JoinNo Yes

Crowdfunding Platform

t=t+1

Construct quasi public goods of the new projects

Calculate existing projects

Pay dividends

t T

No

t=t+1

t T

No

Stop

YesYes

Default ?No

Yes②

③

④

①

①. Dividend rateproportion of revenue that CFrscan get from CF Platform

14

Flowchart of MethodologyStart

（Initialization）

Calculate the potential profit of joining crowdfunding f(r)

Crowdfunding Platform

No

Yes

Potential Crowdfunders

Set the parameter of crowdfunding

Observe the attitudes of adjacent nodes

NoYes

Do not join

JoinNo Yes

Crowdfunding Platform

t=t+1

Construct quasi public goods of the new projects

Calculate existing projects

Pay dividends

t T

No

t=t+1

t T

No

Stop

YesYes

Default ?No

Yes②

③

④

①

①. Dividend rate②. Herd Effect

the threshold of make decision directly instead of calculate the profit

15

Flowchart of MethodologyStart

（Initialization）

Calculate the potential profit of joining crowdfunding f(r)

Crowdfunding Platform

No

Yes

Potential Crowdfunders

Set the parameter of crowdfunding

Observe the attitudes of adjacent nodes

NoYes

Do not join

JoinNo Yes

Crowdfunding Platform

t=t+1

Construct quasi public goods of the new projects

Calculate existing projects

Pay dividends

t T

No

t=t+1

t T

No

Stop

YesYes

Default ?No

Yes②

③

④

①

①. Dividend rate②. Herd Effect③. Scale Effect

the revenue of each QPG is positively related to its market scale

16

Flowchart of MethodologyStart

（Initialization）

Calculate the potential profit of joining crowdfunding f(r)

Crowdfunding Platform

No

Yes

Potential Crowdfunders

Set the parameter of crowdfunding

Observe the attitudes of adjacent nodes

NoYes

Do not join

JoinNo Yes

Crowdfunding Platform

t=t+1

Construct quasi public goods of the new projects

Calculate existing projects

Pay dividends

t T

No

t=t+1

t T

No

Stop

YesYes

Default ?No

Yes②

③

④

①

①. Dividend rate②. Herd Effect③. Scale Effect④. Policy – Penalty

fine the CF Platform a certain proportion of the revenue if they choose to default

17

Crowdfunders

yield forecast(Scale effect)

Default forecast(based on historical data)

Potential profit (don’t know the specific value of scale and default factor)

① Charging pile ↑ EV sales ↑ revenue of charging pile ↑

② Scale forecast

③ Random variabledescribes the change of yield that can’t be explained by scale

factor

(1)

(2)

18

Crowdfunding Platform

Yield forecast (Scale effect)

Default (at most once in each project)

Potential profit (knows the specific value of scale and default factor)

(3)

19

Information Asymmetry

1. Decision variables

2. Market scale 𝑵𝑶𝑫𝒓+

Crowdfunding Platform

Default or not

Potential Crowdfunders

Join or not

Crowdfunding Platform Potential Crowdfunders

Crowdfunding scale √ ×

Content

20

Introduction

Methodology

Result

Conclusion

21

Data

Nomenclature Implications Value

𝑁𝑂𝐷 Total amount of nodes 2000

PJ Duration of each project 10

T Amount of projects 30

PCF Financing amount of each contract 1.2

CCP Construction cost of charging pile 0.2

𝑅𝐶𝐹0 Initial dividend ratio 0.5

𝑆𝑇0𝑒,𝑐 ∙ 𝐹𝐸𝐸0 Initial expected yield 0.15

Degree of scale-free network 3

Times of simulation 100

22

Sensitivity - Herd effect Default ratioJoin ratio

Lower threshold Higher threshold

1. The lower threshold in decision making significantly impacts the crowdfunding

scale (join ratio).

people are more likely to be affected by the negative attitude

23

Sensitivity - Scale effect

Slope of yield forecast Slope of yield forecast

Default ratioJoin ratio

2. The stronger the scale effect is, the more investors it will attract and the

lower default ratio will be.

24

Sensitivity - Dividend ratio

Dividend ratio Dividend ratio

Default ratioJoin ratio

3. The dividend ratio has a positive correlation with the join ratio or the default

ratio. So there exist an optimal value for dividend ratio: 0.6.

25

PenaltyDefault ratioJoin ratio

4. The increase of penalty significantly reduce the default ratio and increase platform’s profit.

① reduce the default rate;

② enhance investors’ confidence.

Content

26

Introduction

Methodology

Result

Conclusion

27

Conclusion

1. The lower threshold in decision making significantly impacts the crowdfunding scale (join ratio).2. The stronger the scale effect is, the more investors it will attract and the lower the default ratio will be.3. The dividend ratio has a positive correlation with the join ratio or the default ratio. So there exist an optimal value for dividend ratio: 0.6. 4. The increase of penalty significantly reduce the default ratio and increase platform’s profit.

Suggestion:

1. For CF Platforms: Enhance advertising

Set the dividend ratio around 0.6

2. For government: Implemented a strict penalty mechanism (at least 60%).

Thank you for your attention~

Yan LI

lynn-0916@outlook.com

Academy of Chinese Energy Strategy, China University of Petroleum-Beijing,

18 Fuxue Road, Changping Dist., Beijing 102249, China