Eric Friedman () (Rutgers University) Paul Resnick (Michigan)
Abstract
On the Internet it is easy for someone to obtain a new identity. This introduces opportunities to misbehave without paying reputational consequences. A large degree of cooperation can still emerge, through a convention in which newcomers ``pay their dues'' by accepting poor treatment from players who have established positive reputations. One might hope for an open society where newcomers are treated well, but there is an inherent social cost in making the spread of reputations optional. We prove that no equilibrium can sustain significantly more cooperation than the dues-paying equilibrium in a repeated random matching game with a large number of players in which players have finite lives and the ability to change their identities, and there is a small but nonvanishing probability of mistakes. Although one could remove the inefficiency of mistreating newcomers by disallowing anonymity, this is not practical or desirable in a wide variety of transactions. We discuss the use of entry fees, which permits newcomers to be trusted but excludes some players with low payoffs, thus introducing a different inefficiency. We also discuss the use of free but unreplaceable pseudonyms, and describe a mechanism which implements them using standard encryption techniques.
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Publisher Info
Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number
199820.
Find related papers by JEL classification: D60 - Microeconomics - - Welfare Economics - - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Christopher Avery & Paul Resnick & Richard Zeckhauser, 1999.
"The Market for Evaluations,"
American Economic Review,
American Economic Association, vol. 89(3), pages 564-584, June.
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