How Effective are Electronic Reputation Mechanisms? An Experimental Investigation
AbstractElectronic reputation or "feedback" mechanisms aim to mitigate the moral hazard problems associated with exchange among strangers by providing the type of information available in more traditional close-knit groups, where members are frequently involved in one another's dealings. In this paper, we compare trading in a market with online feedback (as implemented by many Internet markets) to a market without feedback, as well as to a market in which the same people interact with one another repeatedly (partners 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 in the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implications of this perspective for improving feedback systems.
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Bibliographic InfoPaper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 3.
Date of creation: 26 Nov 2003
Date of revision:
Publication status: Published in Management Science, Vol. 50, Number 11, Nov. 2004, 1587-1602
Other versions of this item:
- Gary E. Bolton & Elena Katok & Axel Ockenfels, 2004. "How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation," Management Science, INFORMS, vol. 50(11), pages 1587-1602, November.
- NEP-ALL-2003-11-30 (All new papers)
- NEP-CBE-2003-11-30 (Cognitive & Behavioural Economics)
- NEP-COM-2003-11-30 (Industrial Competition)
- NEP-EXP-2003-11-30 (Experimental Economics)
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