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The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation

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Author Info
Friederike Mengel
Axel Ockenfels
Werner Güth ()

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Abstract

Applying an evolutionary framework, we investigate how a reputation mechanism and a buyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthiness and trust. Our analysis suggests that the costs involved in giving reliable feedback determine the gains from trade that can be obtained in equilibrium. Buyer insurance, on the other hand, can affect the trading dynamics and equilibrium selection. We find that, under reasonable conditions, buyer insurance crowds out trust and trustworthiness.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Discussion Papers on Strategic Interaction with number 2006-03.

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Length: 18 pages
Date of creation: Jan 2006
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Handle: RePEc:esi:discus:2006-03

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  1. Werner Gueth & Axel Ockenfels, 2000. "Evolutionary Norm Enforcement," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 127(2), pages 335-, June.
    Other versions:
  2. Tobias J. Klein & Christian Lambertz & Giancarlo Spagnolo & Konrad O. Stahl, 2005. "Last Minute Feedback," Discussion Papers 62, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised Mar 2006. [Downloadable!]
    Other versions:
  3. Axel Ockenfels, 2002. "Reputationsmechanismen auf Internet-Marktplattformen - Theorie und Empirie -," Discussion Papers on Strategic Interaction 2002-46, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  4. Werner Güth & Axel Ockenfels, 2002. "The Coevolution of Trust and Institutions in Anonymous and Non-anonymous Communities," Discussion Papers on Strategic Interaction 2002-07, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  5. Selten, Reinhard, 1983. "Evolutionary stability in extensive two-person games," Mathematical Social Sciences, Elsevier, vol. 5(3), pages 269-363, September. [Downloadable!] (restricted)
  6. Eric J. Friedman* & Paul Resnick, 2001. "The Social Cost of Cheap Pseudonyms," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(2), pages 173-199, 06. [Downloadable!] (restricted)
  7. Patrick Bajari & Ali Hortacsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June. [Downloadable!] (restricted)
  8. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "How Effective are Online Reputation Mechanisms?," Discussion Papers on Strategic Interaction 2002-25, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  9. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Guth, Werner, 1995. "An Evolutionary Approach to Explaining Cooperative Behavior by Reciprocal Incentives," International Journal of Game Theory, Springer, vol. 24(4), pages 323-44.
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