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Learning Trust

Author

Listed:
  • Iris Bohnet

    (Harvard University,)

  • Heike Harmgart

    (University College London and IFS,)

  • Steffen Huck

    (University College London,)

  • Jean-Robert Tyran

    (University of Copenhagen,)

Abstract

We examine the effects of different forms of feedback information on the performance of markets that suffer from moral hazard problems due to sequential exchange. As orthodox theory would predict, we find that providing buyers with information about sellers' trading history boosts market performance. More surprisingly, this beneficial effect of incentives for reputation building is considerably enhanced if sellers, too, can observe other sellers' trading history. This suggests that two-sided market transparency is an important ingredient for the design of well-functioning markets that are prone to moral hazard. (JEL: C72, C91, L14) Copyright (c) 2005 The European Economic Association.

Suggested Citation

  • Iris Bohnet & Heike Harmgart & Steffen Huck & Jean-Robert Tyran, 2005. "Learning Trust," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 322-329, 04/05.
    • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:2-3:p:322-329
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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