How Effective are Online Reputation Mechanisms?
AbstractOnline reputation - "feedback" - mechanisms aim to mitigate the moral hazard problems associated with spatially distant exchange among strangers by providing traders with the type of information available in small groups, where members are frequently involved in one another's dealings. We compare trading in a market with feedback to a market without, as well as to a market in which the same people interact with one another repeatedly (partner market). We find that, while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implecations of this perspective for improving these systems.
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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2002-25.
Date of creation: May 2002
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-21 (All new papers)
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