Managing skill certification in online outsourcing platforms: A perspective of buyer-determined reverse auctions

In online outsourcing platforms where clients (buyers) can procure diverse services from freelancers (service providers), skill certification systems are usually offered for freelancers to signal their private service expertise. This study considers a multi-stage online outsourcing context where the freelancers may participate in skill certification before bidding for a client's service contract in a buyer-determined reverse auction. The paper examines the interactions of the freelancers' certification, bidding, and service effort decisions with the client's design and award of the outsourcing contract, and it highlights the impacts of the certification system on the transaction parties' decision results. Moreover, the paper also investigates the platform's adoption and optimization decisions towards the certification system. The results show that freelancers would participate in certification, if and only if their expertise exceeds a threshold that is decreasing in both the transaction efficiency (which decreases in the commission rates charged by the platform) and certification informativeness. The client should set a smaller project scope and a lower penalty for low-quality delivery when the certification informativeness is higher or the transaction efficiency is lower. Both the client and the freelancers are more likely to benefit from the certification system when the certification informativeness or transaction efficiency is higher, or when the certification cost is lower. For the platform, the certification system is valuable, and its value is increasing in the certification informativeness. The platform can optimize the commission rates such that the resulting transaction efficiency is decreasing in the certification informativeness and increasing in the certification cost.