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Adverse Selection and Moral Hazard in Anonymous Markets

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Author Info

  • Klein, T.J.
  • Lambertz, C.
  • Stahl, K.

    (Tilburg University, Center for Economic Research)

Abstract

Abstract: We study the effects of improvements in eBay’s rating mechanism on seller exit and continuing sellers’ behavior. Following a large sample of sellers over time, we exploit the fact that the rating mechanism was changed to reduce strategic bias in buyer rating. That improvement did not lead to increased exit of poorly rated sellers. Yet, buyer valuation of the staying sellers—especially the poorly rated ones—improved significantly. By our preferred interpretation, the latter effect results from increased seller effort; also, when sellers have the choice between exiting (a reduction in adverse selection) and improved behavior (a reduction in moral hazard), then they prefer the latter because of lower cost.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2013-032.

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Date of creation: 2013
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Handle: RePEc:dgr:kubcen:2013032

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Web page: http://center.uvt.nl

Related research

Keywords: Anonymous markets; adverse selection; moral hazard; reputation building mechanisms;

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  6. Klein, T.J. & Lambertz, C. & Spagnalo, G. & Stahl, K.O., 2009. "The actual structure of eBay’s feedback mechanism and early evidence on the effect of recent changes," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3448701, Tilburg University.
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